Allowance for Doubtful Accounts
It is a contra account which is netted against accounts receivable when being reported in the company’s financial statements. When the debit balance appearing in accounts receivable ledgers is netted against the credit balance of allowance for doubtful accounts then the outcome is called the net realizable value of accounts receivables.
The credit balance in the allowance for doubtful accounts comes from the journal entry in which bad debts expense is debited and charged to company’s income statement.
When it is confirmed that balance appearing in a specific account is uncollectible and allowance against the said account has already been created then in such a scenario the said balance appearing in the allowance for doubtful accounts should be debited while accounts receivable should be credited.