Bad debt expense什麼意思

"Bad debt expense" is an accounting term used to describe the amount of money that a company writes off as uncollectible from its accounts receivable. When a company extends credit to a customer and later determines that the customer will not pay the full amount owed, the company records a bad debt expense. This expense reduces the company's reported sales and profits for the period in which the write-off occurs.

Bad debt expense is a normal and expected cost of doing business, especially for companies that offer credit to their customers. To account for the risk of bad debts, companies often maintain a reserve for doubtful accounts, which is a portion of their accounts receivable that they expect will not be paid. The reserve is created by recording a bad debt expense on the income statement and reducing the accounts receivable balance on the balance sheet by the same amount.

The determination of bad debt expense can be based on various methods, such as the percentage of sales method, the aging of accounts receivable method, or specific identification of bad debts. The choice of method depends on the nature of the business and the accuracy of historical data.

In summary, bad debt expense is a critical aspect of financial accounting that reflects the reality of non-payment in credit transactions and helps companies accurately report their financial performance and position.