Bad Debt Expense
The accounts of customers who do not pay what they have promised to pay; the amount is an expense of selling on credit; also called uncollectible accounts.
Allowance for Doubtful Accounts Assets
• there is no way of telling which A/R will turn out to be uncollectible.
• crediting the controlling account for A/R would throw the individual accounts out of balance with the controlling account.
• therefore, Allowance for Doubtful Accounts is credited.
• it is a contra asset account.
• it must be estimated in a conservative manner.
• the account must be adjusted monthly.