What is a Credit Balance In Allowance For Doubtful Accounts

Here we will study about Allowance For Doubtful Accounts Credit Balance. Previously, we studied about “Allowance For Doubtful Accounts Debit Balance”.

Allowance For Doubtful Accounts have Credit balance because the amount of Actual Bad Debts Written Off is less than the Provision For Doubtful Debts / Allowance for Doubtful Accounts or the amount estimated for bad debts is more than the actual amount received from our customers.

So, We Get Credit Balance For Allowance For Doubtful Accounts as a result of lesser amount of actual Bad Debts than the Provision For Doubtful Debts / Allowance for Doubt Accounts.

Considering Our Example in the Previous Article, "What is a Debit Balance In Allowance For Doubtful Accounts", We make some changes in this example to understand this topic.

For Example, the account receivable for the Previous Accounting Year was Rs.70000 and there was a provision for doubtful debts of 2% on Accounts Receivable while the Actual Bad Debts Written off in the Current Accounting Period is Rs. 800, so now we need to adjust the Balance in Allowance For Doubtful Accounts.

At The Previous Accounting Period, following Accounting Journal Entry was Passed in the book of company:

Uncollectible Accounts Expense / Doubtful Debts a/c 1400

               Allowance For Doubtful Accounts / Provision For Doubtful Debts a/c 1400

                                  (Allowance of 2% For Doubtful Accounts Recorded)

Allowance For Doubtful Accounts For Previous Year = 2% X 70000 = 1400

Actual Bad Debts Written Off In The Current Year = Rs 800

Add:  Previous More Estimation for Doubtful Debts To Accounts Receivable  = 1400 - 800 = 600

Total amount of Provision for Doubtful Debts to be written off from Account Receivable in Balance Sheet = 600, because we estimate the amount (Rs. 1400) for this kind of account than the actual amount of Bad Debts from our debtors / Account Receivables. So, we need to add back Rs. 600 to Accounts Receivable to show Real Financial Position.

So, it is all about What is Credit Balance in Allowance For Doubtful Accounts or Provision For Doubtful Debts In Accounting.