Allowance for Doubtful Accounts

Definition

A contra-asset account that estimates how much of your Accounts Receivable you'll never collect. It's like setting aside a rainy-day fund for customers who ghost you. Appears on the balance sheet as a reduction to A/R.

Related Terms

Bad Debt Expense

The cost of doing business on credit—recognizing that some customers won't pay what they owe. Appears on the income statement as an operating expense.

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