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Accounting - Bad Debt Expense vs Allowance for Doubtful Accounts?


I am unclear as to what the true definition and meaning of Bad Debt Expense and Allowance for Doubtful Accounts.

For example, an adjustment of $15 is recorded for Bad Debt

This would debit Bad Debt Expense by $15
This would credit Allowance for Doubtful Accounts by $15

Correct?

Naturally, Bad Debt Expense is treated as an Expense but what is Allowance for Doubtful Accounts? Is this considered a liablity?

538 day(s) ago

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Answers (2)

mike11 		yes,your answer is correct!

Allowance for Doubtful Debt is considered as a current liability!
but normally at Balance Sheet we will directly use the Account Receivable minus the Amount of Allowance for Doubtful Debt.

Posted 538 days ago

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janetmok 		The allowance account is a contra asset account which is deducted from accounts receivable on the balance sheet to arrive at net receivables. Under the conservatism principle of accounting, receivables should be reported at the amount most likely to be collected rather than the full amount. Before financial statements are prepared an estimate is made of the amount of receivables that will become bad. That way the bad debts expense is recorded in the year when the receivables were earned, and receivables are reported at their estimated net realizable value.

Posted 538 days ago

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Question Title Accounting - Bad Debt Expense vs Allowance for Doubtful Accounts?
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