Allowance for Doubtful Accounts

Allowance for doubtful accounts is a reserve account for for doubtful debt. In USA, provision or reserve for doubtful debt account is known as allowance for doubtful accounts. We know that some seller sells the goods on credit. So, they have to maintain account receivable accounts.

There is also chance that some accounts receivable accounts will become default due to not getting payment from them. So, we create a reserve account on the basis of estimation. If there is 10% chance of becoming default debtors. We will show 10% allowance for doubtful accounts as countra asset in the balance sheet.

Following is its example :- 

Balance Sheet as on___________

Assets 

Gross accounts receivable

$100,000

Less: Allowance for bad debts

$10,000

Net receivables

$90,000

If every year, we will change the rate of allowance for doubtful debt, we will deduct gross accounts receivable on the current rate of allowance for doubtful debt. If there is any bad debt, we will deduct the bad debt first. which is shown outside the trial balance. 

Related : Provision for Doubtful Debt Account