Bad Debt Expense

Definition

The cost of doing business on credit—recognizing that some customers won't pay what they owe. Appears on the income statement as an operating expense.

Related Terms

Allowance for Doubtful Accounts

A contra-asset account that estimates how much of your Accounts Receivable you'll never collect. It's like setting aside a rainy-day fund for customers who ghost you. Appears on the balance sheet as a reduction to A/R.

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