Is Allowance For Doubtful Accounts A Current Asset?
Allowance for doubtful accounts is the unpaid invoices or debts, this account is also known as bad debts reserves. This account is recorded in the balance sheet as a contra asset because it reduces the accounts receivable balance that is a current asset account for any business.
Is Allowance For Doubtful Accounts A Current Asset?
Allowance for doubtful accounts is the contra asset that reduces the amount of the receivables, so it is not treated as a current asset in the balance sheet but it is a contra asset account.
The allowance for doubtful accounts is recorded under the section of current assets and it is subtracted from the balance of accounts receivable in the statement of financial position.
In short, allowance for doubtful accounts shows the balance that is not expected to receive. The entry of the allowance for doubtful debts in the balance sheet will be:
| Current Assets: | |
| Cash & Cash Equivalents | xxx |
| Receivables | xxx |
| Less: Allowance For Doubtful Debts | (xxx) |
| Short Term Investments | xxx |
| Inventories | xxx |
| Total Current Assets | xxx |
The main purpose of recording allowance for doubtful debts is to estimate the losses because of the outstanding amount that is not paid by the customers.
This account is normally used in the accrual bases accounting which matches the revenue and expenses to show the actual financial condition of an entity.
Where does allowance for doubtful accounts go on the balance sheet?
Allowance for doubtful debts is recorded as contra asset under the heading of current asset which is then deducted from the accounts receivable in the balance sheet.
What type of account is the allowance for doubtful debts?
It is a contra-asset account that reduces the amount of accounts receivables.
Is allowance for doubtful debts debit or credit?
The value of the asset increases with the debit entry while the allowance for doubtful debts is a contra asset which increases with the credit entry.
What is the double entry for allowance for doubtful accounts?
The following is the double entry for allowance for doubtful debts:
- Debit bad debts expense account
- Credit allowance for doubtful debts