What defines a doubtful debt?

A doubtful debt is characterized by uncertainty regarding its collection, meaning there are doubts about whether the outstanding amount will be fully paid by the debtor. This situation typically arises when the debtor faces financial challenges or when there are other indications that they may not be able to meet their repayment obligations. Recognizing doubtful debts is critical for financial reporting as it allows businesses to make more accurate assessments of their financial position and potential losses.

Other definitions in the options do not align with the concept of doubtful debts. For example, a debt expected to be fully recovered indicates confidence in its collection, which contradicts the notion of doubt. A debt that has been partially paid implies that some recovery has occurred, reducing the uncertainty concerning the remaining amount. Lastly, a debt that is overdue may simply indicate a timing issue and not necessarily uncertainty about recovery; overdue debts can sometimes still be fully collectible. This highlights the distinct nature of doubtful debts, which is primarily defined by the uncertainty surrounding their settlement.