Is the provision for doubtful debts an operating expense?

Definition of Provision for Doubtful Debts

Some companies use Provision for Doubtful Debts as the name of the contra-asset account which is reported on the company's balance sheet. Other companies use Provision for Doubtful Debts as the name for the current period's expense that is reported on the company's income statement.

If Provision for Doubtful Debts is the name of the account used for recording the current period's expense associated with the losses from normal credit sales, it will appear as an operating expense on the company's income statement. It may be included in the company's selling, general and administrative expenses.

[However, if the expense is associated with extending credit outside of a company's main selling activities, the credit loss will be reported as a nonoperating expense.]

Example of Provision for Doubtful Debts

Accounting textbooks avoid the use of the word "provision" and instead use the following terminology:

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