Definition of Allowance for Uncollectible Accounts
The Allowance for Uncollectible Accounts or Allowance for Doubtful Accounts is a contra asset account that reduces the amount of accounts receivable to the amount that is more likely be collected.
The income statement account Bad Debts Expense is part of the adjusting entry that increases the balance in the Allowance for Uncollectible Accounts.
Effect of No Allowance for Uncollectible Accounts
If a company’s balance sheet does not reduce its accounts receivable debit balance with a credit balance in Allowance for Uncollectible Accounts, the company is communicating that it is not anticipating any bad debts expense relating to its existing accounts receivable. Hence, the income statement is delaying the reporting of bad debts expense on its income statement until an account receivable is actually written off as uncollectible.
