What type of expense is registered when a business acknowledges it may not collect a certain receivable?

When a business recognizes that it may not be able to collect a specific receivable, this situation is classified as a bad debt. Bad debts represent amounts that are no longer deemed collectible, often due to customer bankruptcy or unwillingness to pay. This recognition acts as an adjustment in the accounts to reflect the actual realizable value of receivables on the balance sheet.

Recording a bad debt expense reduces the total assets on the balance sheet since accounts receivable will be lowered, and it also reflects a loss in the income statement, affecting net income for that period. This accounting practice helps maintain accurate financial statements that represent the true financial position of the business.

In contrast, the other expenses listed do not pertain specifically to uncollectible receivables. Discounts allowed relate to reductions in sales prices to encourage payment. Bank fees are costs associated with banking transactions, and shop rent or electricity are operating expenses necessary for business operations but do not involve the recognition of uncollectible debts.