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such sales has not been taken into account for ascertaining the total sales for the period, bad debts related to those sales are not allowed as deduction against the taxable income.

Accrual Method:

If the business adopts an accrual method of accounting, where income and expenses are recorded into the books of accounts when they accrue regardless of when they have been received or paid respectively. In this method the uncollected amount of credit sales is also included into the total income for the period, tax deduction is allowed only while using the accrual method of accounting.

If the business adopts the cash basis of accounting, where income and expenses are recorded into the books of accounts when they are received or paid for respectively regardless of the fact when they were accrue. While using the cash basis of accounting, deduction on account of the taxable income on account of the bad debts is not allowed.

Debts from a former business:

If the owner of the business sells his business to someone else but keep his receivable with him still such debts are called as the business debts as they were actually occurred during the normal course of business activity. If such debt subsequently becomes bad, still it is assumed to be the business bad debts. If the owner of the business sells his business to someone else and also sells the receivables to the same person, such debts are still business debts for the new owner of the business and if the same subsequently become bad these are the business bad debts for the new owner and he can have the tax benefit on account of those bad debts. If a person sells his business to one person and sells his receivables to another person, in such a case if those debts become worthless, the activities of the new owner of the receivables decides either those bad debts are the business bad debts or not. If the new owner of the receivables acquired those debts as a part of his business such debts are regarded as business bad debts if become worthless.

Debt acquired from a deceased person:

The treatment of the bad debts of the business acquired from a deceased person is ascertained exactly as it is treated in case of the sale of the business. If the deceased person's business and receivables are received by the same successor, debts become worthless such receivables are treated as business bad debts as those were closely related to the business. If the business and receivables of the deceased person are received by the two different successors, the activities of the successor receiving the receivables decide either the debts became worthless are business bad debts or not.

Example 1

Mr. Ali died in the year 2005, his business and business receivables were received by his son Mr. Akmal. Subsequently a part of those receivables become bad. Now Mr Akmal can deduct such bad debts against his taxable income because these are business bad debts being closely related to his business when become bad.

Example 2

Mr. Ali died in the year 2005, his business was received by his son Mr. Akmal and business receivables were received by 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。