Oregon Construction Contractors (CCB) Practice Test

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When does a debt become classified as a bad debt?

After not receiving payment for 30 days
Once it exceeds $1000
After the third notice
Once there is a reasonable belief that the debt is uncollectible

The correct answer is: Once there is a reasonable belief that the debt is uncollectible

A debt is classified as a bad debt when there is a reasonable belief that it is uncollectible. This determination is based on various factors, such as the debtor's financial condition, efforts made to collect the debt, and any communication from the debtor regarding their ability to pay. Recognizing a debt as bad at this stage allows businesses to accurately account for their financial situation, potentially affecting their tax classifications and overall financial health. While the other options mention specific timelines or amounts, they do not consider the broader context of collectibility and the business's assessment of the debtor’s inability to pay. It’s essential to recognize that the mere passage of time or the amount owed does not inherently lead to a debt being classified as bad without the corroboration of the debtor's overall financial outlook.