Bad debt expense is reported on the income statement as:

• A. A contra-revenue account
• B. A non-operating expense
• C. An operating expense
• D. A reduction of accounts receivable

Answer: (C)

Verified step by step guidance

1. Understand the concept of bad debt expense: Bad debt expense represents the cost of accounts receivable that a company does not expect to collect. It is an estimate of uncollectible amounts and is recorded to comply with the matching principle in accounting.
2. Identify where bad debt expense is reported: Bad debt expense is reported on the income statement as part of operating expenses. Operating expenses include costs incurred during the normal course of business operations, such as selling, general, and administrative expenses.
3. Clarify why it is not a contra-revenue account: A contra-revenue account reduces revenue directly, such as sales returns and allowances. Bad debt expense does not reduce revenue but instead reflects the cost of uncollectible receivables.
4. Explain why it is not a non-operating expense: Non-operating expenses are costs unrelated to the core business operations, such as interest expense or losses on asset sales. Bad debt expense arises from the company's primary activity of extending credit to customers, making it an operating expense.
5. Discuss why it is not a reduction of accounts receivable: While bad debt expense is related to accounts receivable, it is recorded as an expense on the income statement, not directly as a reduction of accounts receivable. The reduction of accounts receivable occurs through the allowance for doubtful accounts, which is a contra-asset account on the balance sheet.