Friday, October 12, 2007

#27 Classification of Bad Debt Expense

Should the bad debt expense be net off from the gross profit? or should it be classified in other operating expense?

The answer is: bad debt expense should be classified as General & Administrative Expense in Profit & Loss.

7 comments:

Anonymous said...

What's your GAAP basis for classifying bad debt expense as General & Administrative instead of Program Expense if it relates to a receivable from a Program.

Anonymous said...

Would you happen to have the GAAP literature that shows that bad debts expense should be classified as general and administrative?

Anonymous said...

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Anonymous said...

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Anonymous said...

Brim over I agree but I contemplate the brief should acquire more info then it has.

Anonymous said...

bad debt expense is classified as:
a) cost of sales expense
b) administrative expense
c) other expense
d) selling expense

my professor is insisting that the answer is D

Anonymous said...

Bad debt expense should be classified as a "General & Administrative Expense" as it relates to credit policy that was approved by the "Administrative Managers" to grant customers credit (Accounts Receivable). Hence, this expense needs to be shown as a "General & Administrative Expense" and not a selling expense. If this expense was truly a selling expense, the selling department would rarely grant credit sales as their performance (including total selling expense as part of it) would be higher as bad debt expense increases. Therefore, the selling department does not control it.
I trust that this helps and any professor that says other wise is mistaken.

Prof. Paul J. (NYC)