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Reports & Accounting
Allowance for doubtful accounts, is not customer specific. It's a reduction of the receivable asset, posted at year-end, an estimate based on historical data, - so you may create an allowance for say 5% of your total receivables at year-end, because that is the historical statistic for the business. The entry is dr. Bad Debt expense, cr Allowance (current asset). Then when a specific customer's debt is written off, instead of it going to Bad Debt expense, it goes to the Allowance. If you don't use an allowance you only write off a customer's debt when you are fairly certain that it is bad. You can do that by creating a Credit Memo (using an item linked to Bad Debt expense) or a Journal Entry if there is no sales tax: dr. Bad Debt expense, cr AR/customer