They are recorded as debit as Allowance for Doubtful Accounts.
<h3>Allowance for doubtful accounts </h3>
An allowance for doubtful accounts is a contra account that nets against the total receivables presented on the balance sheet to reflect only the amounts expected to be paid. The allowance for doubtful accounts estimates the percentage of accounts receivable that are expected to be uncollectible. However, the actual payment behavior of customers may differ substantially from the estimate.
KEY TAKEAWAYS
The allowance for doubtful accounts is a contra account that records the percentage of receivables expected to be uncollectible.
The allowance is established in the same accounting period as the original sale, with an offset to bad debt expense.
The percentage of sales method and the accounts receivable aging method are the two most common ways to estimate uncollectible accounts.
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