What does 'doubtful debt' refer to?

Doubtful debt refers to accounts receivable that are uncertain in terms of collectability. This means there is a likelihood that the debt might not be fully repaid by the borrower. It arises when there are indications that the debtor might experience financial difficulties, making them less likely to honor their payment obligations. Recognizing doubtful debts is an important aspect of accounting as it ensures that the financial statements present a more accurate picture of the company's financial health by predicting potential losses from uncollectible accounts.

Attributes of doubtful debts often involve assessing the customer's creditworthiness, analyzing payment history, and considering external economic factors. This leads businesses to make provisions for potential losses in their financial statements, rather than assuming all debts will be repaid. This practice aligns with the principle of prudence in accounting, ensuring that financial statements do not overstate the assets and reflect a realistic view of potential income.

The other choices do not accurately represent the concept of doubtful debts. Guaranteed debts or debts that have been fully repaid do not carry uncertainty in collectability, while debts confirmed to be lost are already written off and therefore do not qualify as doubtful.