Accounting



What to do with the balance in Allowance for Doubtful Accounts?

You need to adjust the balance in the contra asset account Allowance for Doubtful Accounts to be your best estimate of the amount in Accounts Receivable which are not collectible. In other words, adjust the credit balance in the allowance account to become the amount of the receivables that is not expected to turn to cash.

If the Allowance for Doubtful Accounts presently has a credit balance of $2,000 and you believe there is a total of $2,900 of accounts receivable that will not be collected, you need to enter an additional credit of $900 into the Allowance for Doubtful Accounts, and you need to enter a debit of $900 into Bad Debts Expense.

The allowance account appearing on the balance sheet might be titled Allowance for Uncollectible Accounts, Provision for Bad Debts, or some combination of these. The income statement account might have a title such as Uncollectible Accounts Expense, Doubtful Accounts Expense, etc.

Learn more about Accounts Receivable and Bad Debts Expense.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.




Comments

9 Responses to “What to do with the balance in Allowance for Doubtful Accounts?”

  1. Ken Kaufman on January 27th, 2010 2:06 pm

    One of the challenges with the adjustments to the Allowance for Doubtful Accounts contra asset is when the balance drops, say from $10,000 to $5,000. You have to push a $5,000 credit through an expense account, which can often raise the eyebrows of bankers and others.

  2. Emmanuel Tafirenyika on February 5th, 2010 3:04 am

    When the balance drops,is it not better practice to pass a credit entry through to the Profit & Loss account (the double entry account) rather than pass credits directly into an expense account ?
    So DR the allowance/provisions account and CR P & L ?

  3. olaitan on February 6th, 2010 6:59 am

    i want to sit for jamb exam this year, and i want to study accounting in school, which areas should i focus on.
    i will be very happy if you give me a reply to help me through.

  4. jen on February 8th, 2010 12:35 pm

    I am unclear as to how the Allowance for Doubful Accounts balance fluctuates. When you have to adjust it for the new estimate (say the estimate is 2500 and the balance is 2000 so the entry is for 500) where did that 2000 balance come from? the previous year? how do I clear out the AFDA account from year to year?

  5. Carlo on February 23rd, 2010 8:37 am

    What about the methods used in recognizing doubtful accounts?

  6. yatrik on February 24th, 2010 4:14 am

    closing stock amount as of 31-03-1998 is apppearing in the trail balance of 2002. what does it means.How do we make adjustment for this or how do we pass an entry for this transaction.

  7. Adesayo on June 9th, 2010 7:28 am

    I believe that it is better to treat any differences arising from the estimates in uncollectible debts whether increasing the receivables(debtors) having reduced the provision or by reducing the receivables having increased the provision for bad debts with your mind set from the balance sheet(statement of financial position) point of view…..

  8. Cheyne on July 3rd, 2010 2:09 am

    Hi I am an Australian Studying Accounting do you know on any web sites like this one that is Australian based thank you for your time

  9. muez on August 17th, 2010 2:13 am

    lets share an experiance, contact me. thankyou.

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