Which option best describes bad and doubtful debts?

Bad and doubtful debts refer to amounts that a business has recorded as accounts receivable but has determined are unlikely to be collected. This situation arises when customers are unable or unwilling to pay their debts, often due to financial difficulties, insolvency, or other reasons that indicate the debt is unlikely to be recovered.

Identifying debts as bad or doubtful is crucial for accurate financial reporting since it helps reflect a more realistic view of a company's assets. Recognizing these debts appropriately allows businesses to adjust their financial statements and reserve sufficient allowances to account for potential losses. By categorizing these debts as uncollectible, a business can ensure that its financial health is not overstated, which can affect decisions made by investors, lenders, and management.

The other options do not accurately capture the essence of bad and doubtful debts. Expected future income pertains to potential revenues that have not yet been realized, overdue accounts simply signify that payment is late but do not necessarily indicate that a debt is uncollectible, and revenue that is realized refers to income that has been earned and received, which is separate from debts owed to the business. Thus, characterizing bad and doubtful debts as debts deemed uncollectible effectively conveys the concept.