What is bad debt? This is composed of the total value of the company’s debts. Now, it would need to be compared to the sales that the company has received in a certain period of time. Do remember that bad debt is a huge amount of money that is not likely to be paid to the creditor anymore.
For example, if the company will be liquidated, then this would mean that the company will have bad debt as it cannot pay the creditors. The answer to this question is B. The debt will then be divided by the sales that the company has acquired. When this value is increased, this is an indication that the company is doing credit sales to customers who are not exactly known to pay for the materials and services that they get.
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