allowance+for+bad+debt

Allowance for bad Debt is negative asset accounts Accounts Receivable.

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.

https://www.dlsweb.rmit.edu.au/toolbox/balanceact/toolbox11_06/resources/html/ffact_doubtfuldebts.htm

=What is the provision for bad debts? = The provision for bad debts might refer to the [|balance sheet account] also known as the Allowance for Bad Debts,[|Allowance for Doubtful Accounts], or Allowance for Uncollectible Accounts. In this case Provision for Bad Debts is a [|contra asset account] (an asset account with a [|credit balance] ). It is used along with the account <span style="color: #4185b1; font-family: inherit; font-size: inherit; text-decoration: none; vertical-align: baseline;">[|Accounts Receivable] in order to report the net realizable value of the accounts receivable.

<span style="background-color: #ffffff; color: #333333; font-family: Helvetica,Arial,'Lucida Grande',sans-serif; font-size: 14px;">Provision for Bad Debts might also be an the <span style="color: #4185b1; font-family: inherit; font-size: inherit; text-decoration: none; vertical-align: baseline;">[|income statement account] also known as Bad Debt Expense or Uncollectible Account Expense. In this situation, the Provision for Bad Debts reports the credit losses that pertain to the period shown on the income statement.

=<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 17.92px;">Doubtful debts =

<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 12.8px;">History has shown that a certain percentage of debtors will not pay. To accurately reflect the amount owed an **allowance for doubtful debts** is created and recorded on the balance sheet. This reduces the debtors balance, and is an estimate of the current debtors who are likely to become uncollectible in the future. If there is already an account for doubtful debts, this account would be adjusted at each balance day.

<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 12.8px;">The following entry shows the creation of an **allowance for doubtful debts**. We debit an expense account called **Doubtful debts** and credit a current asset account called **Allowance for doubtful debts**.

No ||~ Debit $ ||~ Credit $ || Allowance for Doubtful Debts
 * ~ Date ||~ Particulars ||~ Folio
 * 30 Jun || Doubtful Debts (E)

(-CA) Allowance for doubtful debts at 2% of Debtors ||  || 800 || 800 ||

<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 16.64px;">Increasing doubtful debts
<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 12.8px;">If the **debtors balance** at the end of the last financial year is lower than the **current Debtors balance**, doubtful debts will be **increased**.

<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 15.36px;">Example
<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 12.8px;">Doubtful debts will be debited and the allowance for doubtful debts will be credited as shown below.

No ||~ Debit $ ||~ Credit $ || Allowance for Doubtful Debts
 * ~ Date ||~ Particulars ||~ Folio
 * 30 Jun || Doubtful Debts (E)

(-CA) Allowance for doubtful debts at 2% of Debtors ||  || 800 || 800 ||

<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 16.64px;">Decreasing doubtful debts
<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 12.8px;">If Debtors balance at the end of the last financial year is higher than the current Debtors balance, Doubtful Debts will be decreased.

<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 15.36px;">Example
<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 12.8px;">Doubtful debts will be credited and the allowance for doubtful debts will be debited as shown below.

No ||~ Debit $ ||~ Credit $ || Doubtful Debts (E) Decrease in Allowance for doubtful debts to be 2% of Debtors ||  || 600 || 600 ||
 * ~ Date ||~ Particulars ||~ Folio
 * 30 Jun || Allowance for Doubtful Debts (NCA)

<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 16.64px;">Writing off doubtful debts
<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 12.8px;">When you receive confirmation that doubtful debts are not going to be paid, you will debit**allowance for doubtful debts** and GST collected and credit debtors control and the debtors individual card.

<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 15.36px;">Example
<span style="background-color: #f8f8f8; color: #575757; font-family: Arial,Helvetica,sans-serif; font-size: 12.8px;">Below is a sample general journal entry. Note: this relates to sales made within a previous accounting period.

No ||~ Debit $ ||~ Credit $ || GST collected Debtors Control (CA) Debtors name (written off) ||  || 400 40 || 440 ||
 * ~ Date ||~ Particulars ||~ Folio
 * 30 Jun || Allowance for Doubtful Debts (NCA)