Business And Finance Solution

Good Debt

Good debt involves someone else paying off the debt for you. An excellent example of good debt is a real estate investment loan in which a tenant pays rental income in excess of the mortgage and related expenses. An SBA (Small Business Administration) loan that allows your business to grow is another example of good debt (so long as your business can pay it off). The best loans are nonrecourse loans, which require no personal guarantees. Good debt leads to wealth.

Bad Debt

Bad debt is something you pay off yourself. Credit cards, car loans, consumer loans, and home mortgages are examples of bad debt. Some bad debt is better than other bad debt. For example, buying a personal residence is in most cases better than buying a car on credit. And while I am not saying that you shouldn’t buy a personal residence on credit, you must remember that a home mortgage is a bad debt because you yourself must pay it off. Bad debt takes money from your pocket, making you poorer and poorer.

in accounting and finance, bad debt is the portion of receivables that can no longer be collected, typically from accounts receivable or loans. Bad debt in accounting is considered an expense.

There are two methods to account for bad debt:

Direct write off method (Non – GAAP)

A receivable which is not considered collectible is charged directly to the income statement.

Allowance method (GAAP)

An estimate is made at the end of each fiscal year of the amount of bad debt. This is then accumulated in a provision which is then used to reduce specific receivable accounts as and when necessary.

manage, control your debit and begin to have that extra income to invest in all the nice goodies you have always wanted …the very basic tips that will soon turn you into a money expert giving you the knowledge you need to succeed financially.