Allowance Method for Bad Debt Expense

Allowance method for bad debts expense is a method used for recognizing losses on credit sales made by the company during a specific accounting period. In the said method, a contra asset account with the title allowance for doubtful accounts is reported on the company’s statement of financial position. Before specifically identifying a trade receivable account as uncollectible, a company debits Bad Debts Expense which is reported on the company’s income statement and credits Allowance for Doubtful Accounts which is netted against accounts receivable on the company’s statement of financial position.