Final answer:
Bad debt expense is recorded under operating expenses as part of SG&A on the income statement, accounting for customer balances unlikely to be paid.
Step-by-step explanation:
Bad debt expense is an anticipated loss that a company accounts for when it determines that certain customers are unlikely to pay their outstanding balances. On the income statement, bad debt expense is listed under operating expenses. It falls specifically under a category called selling, general, and administrative expenses (SG&A), which includes all non-production related expenses. Recording bad debt expense follows the matching principle in accounting, which aligns expenses with the revenues they help to generate within the same period, even if the actual loss from uncollectible accounts is not yet certain.