What would be considered bad debt in a rental car operation?

Bad debt in a rental car operation typically refers to amounts owed to the business that are unlikely to be collected. This often arises when customers fail to pay for the services rendered, such as unpaid rental fees. When customers default on their contracts and the company cannot recover the amounts owed, these unpaid rental fees are classified as bad debt. This adversely affects the company's cash flow and represents a potential loss in revenue.

In contrast, costs related to repairs, advertising expenses, and fuel expenses are operational costs and do not fall under the definition of bad debt, as they are expenses that the company incurs as part of its normal business activities. These costs are generally manageable and do not reflect a collection issue tied to customer payments. Therefore, unpaid rental fees are clearly identified as bad debt due to their nature of being amounts that are owed but not expected to be received.