How to Identify Bad Debt for Acme Company
Which situation best describes a bad debt for Acme Company?
A: Acme writes a check to a supplier which bounces. The supplier does not collect his money
B: Acmes customer writes a check to Acme that bounces. Acme does not collect this money
C: Acme writes a check to a customer and that check bounces. The money is not collected
D: Acme's customer writes a check to the supplier and it bounces, the money is not collected
Answer:
The situation that best represents a bad debt for Acme Company is when a customer writes a check to Acme that bounces and Acme fails to collect this money.
Explanation:
The situation that best describes a bad debt for Acme Company would be 'B: Acmes customer writes a check to Acme that bounces. Acme does not collect this money'. This is because a bad debt occurs when a company sells goods or services on credit and the buyer fails to pay. In this case, Acme extended credit by providing the goods or services before receiving payment, and the customer's check bouncing indicates that the customer did not, in fact, provide payment. As Acme could not collect this money, it represents a bad debt for the company.
The situation that best describes a bad debt for Acme Company is option B: Acme's customer writes a check to Acme that bounces and Acme does not collect the money.
A bad debt occurs when a customer or client fails to make a payment that is owed to a company. In this case, Acme Company did not receive the money from its customer due to the check bouncing, resulting in a bad debt.
When a check bounces, it means that the funds are not available in the customer's account to cover the payment. As a result, Acme could not collect the money owed to them, which is considered a bad debt.