Bad Debt Expense

The estimated cost of receivables a company expects it will never collect.

Bad debt expense is the portion of a company's accounts receivable it estimates customers will never actually pay, recorded on the income statement to reflect that not every sale on credit turns into cash. Recognizing bad debt expense keeps the balance sheet from overstating how much of its receivables are truly collectible.

The company recorded a bad debt expense after a major customer filed for bankruptcy and stopped paying its invoices.