What Is A Debit Balance In The Allowance For Doubtful Accounts (AFDA)

Can Allowance For Doubtful Accounts Be Negative?

Here we discuss about “What is a Debit Balance in the Allowance for Doubtful Accounts”. If you don’t study my previous article about Adjustments in Final Accounts, then kindly read it out because without knowing the introduction about Doubtful Debt Account, you can not understand this particular topic.

Allowance For Doubtful Accounts have debit balance (which is An Unfavorable or A Negative Balance) because the amount of Actual Bad Debts Written Off is greater than the Provision For Doubtful Debts / Allowance for Doubtful Accounts.

For Example, the accounts 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. 5400, so now we need to adjust the Balance in Allowance For Doubtful Accounts.

At The Previous Accounting Period, following Adjusting 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 5400

Less:  Previous Less Estimation for Doubtful Debts From Accounts Receivable = 5400 - 1400 = 4000

Total amount of Provision for Doubtful Debts to be written off from Account Receivable in the Balance Sheet = 4000, because we estimate less amount (Rs. 1400) for this kind of account than the actual amount of Bad Debts (Rs. 5400) from our Debtors / Account Receivables. So, we need more Rs. 4000 to Deduct From Debtors.

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Now after reading the above article, you are in a position to understand the topic and learn how the company businesses record this kind of account in their Financial Statements.