Question

The Bad Debt Expense account is classified:

a) deducted from Accounts Receivable account on the balance sheet
b) as a contra-asset account
c) as the cost to the seller of extending credit
d) as part of cost of goods sold

Answer 1

The Bad Debt Expense account is classified as the cost to the seller of extending credit. This account represents the expense incurred by a company when its customers fail to pay their debts.

Step-by-step explanation:

The Bad Debt Expense account is classified as (c) the cost to the seller of extending credit. This account represents the expense incurred by a company when its customers fail to pay their outstanding debts. It is classified as an expense because it reduces the company's net income and is recorded on the income statement. When a customer fails to pay their debt, the company recognizes the bad debt expense as a cost of doing business.