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Dear Friend,Hello and welcome. Thank you for providing an opportunity to assist you.To begin with, please note that bad debts are not limited to the ones that are not recovered from your routine customers for goods sold. Bad debt is anything which is a debt and is not recovered after making reasonable efforts.In this case, the 40k which you are referring to is a Bad Debt.
Now coming to recording of the same.
In this case, you will pass to first allow and recognize for these bad debts and then to further write it off.The first step for this would be to record as under:Bad Debts Expense DRAllowance for Doubtful Accounts
Now, you will eventually write it off as under:Allowance for Doubtful Debts DRAccounts Receivable
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