Bad debt is an expense that a business incurs once the repayment of credit previously extended to a customer is estimated to be noncollectable.
A bad debt expense is recognized when a receivable is no longer collectible because a customer is unable to fulfill their obligation to pay an outstanding debt due to bankruptcy or other financial problems.
Formula to calculate bad debt expense.
Example:
Suppose a company sold goods worth $100,000 0n credit. Assuming that 2% of sales are not collectible. Determine the bad debt expense.
Therefore, the company’s bad debt expense is $ 2,000.
