What are the bad debts?

Those debtors from where collection of money is not possible and the amount of credit given is a certain loss.

The correct answer is option 2- Those debtors from where collection of money is not possible and the amount of credit given is a certain loss.

Debtors may be of three types: 

Good Debtors are those from where collection of debt is certain.

Bad Debts are those debtors from where collection of money is not possible and the amount of credit given is a certain loss.

Doubtful Debts are those debtors who may pay but the business firm is not sure about the collection of the full amount from them. In fact, as a matter of business experience, some percentage of such debtors are not likely to pay, hence treated as doubtful debts.