Under this method of recognizing losses on credit sales, a contra asset account Allowance for Doubtful Accounts is reported on the balance sheet. Prior to specifically identifying an account receivable as uncollectible, a company debits Bad Debts Expense and credits Allowance for Doubtful Accounts for an estimated amount. The estimate could be based on a percentage of sales or it could be based on the age of its accounts receivables.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,651 reviews