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Accounting
Bad Debt Expense
The cost of sales you made on credit that customers never pay back.
Bad debt expense is recorded either by the allowance method (estimate in advance) or the direct write-off method (only when a specific customer fails to pay). The allowance method is required under GAAP.It's like the money you lose when your friend borrows $20 for lunch and then 'forgets' to pay you back.
Real world: A store sells $5,000 of stuff on credit in a month but later writes off $400 as uncollectible, recording it as bad debt expense.
💡 Bad debt expense is the price of doing business on credit — smart companies plan for it so one or two deadbeat customers don't wreck their profits.