Bad debt is a loss that a company incurs when credit that has been extended to customers becomes worthless, either because the debtor is bankrupt, has financial problems or because it cannot be collected.
It will be the loss of our business, so, we have to pass the journal entry for bad debts:
- Create Bad Debt account under account type Indirect Expense.
- Then go to Transaction > Journal > Create:
Bad Debts Debit
to Customer Credit