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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.

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