The cost of estimated accounts receivable that will not be collected is referred to as which type of expense?

• A. Bad Debt Expense
• B. Interest Expense
• C. Sales Returns and Allowances
• D. Depreciation Expense

Answer: (A)

Verified step by step guidance

1. Understand the concept of accounts receivable: Accounts receivable represents money owed to a company by its customers for goods or services provided on credit.
2. Learn about uncollectible accounts: Not all accounts receivable will be collected, as some customers may default on their payments. The cost of these uncollectible accounts is recorded as an expense.
3. Identify the correct type of expense: The expense associated with uncollectible accounts is referred to as 'Bad Debt Expense.' This reflects the estimated amount of receivables that the company does not expect to collect.
4. Differentiate from other expenses: Bad Debt Expense is distinct from other types of expenses such as Interest Expense (cost of borrowing), Sales Returns and Allowances (reductions in revenue due to returns or allowances), and Depreciation Expense (allocation of the cost of tangible assets over their useful life).
5. Recognize its financial impact: Bad Debt Expense is recorded on the income statement and reduces the company's net income, reflecting the financial impact of uncollectible accounts.