How To Close Out Allowance for Doubtful Accounts When The Customer Failed To Pay

Allowance for Doubtful Accounts that is an estimated for Bad Debt Expense that are closed at the end of accounting period if those customers who paid their payments on time for unpaid invoices. In the original entry there was credited to the allowance for doubtful accounts now debited to close it and credited the Accounts Receivable as shown below:

                 Allowance for Doubtful Accounts a/c    XXX

                                                                            Accounts Receivable a/c    XXX

(Close Allowance for Doubtful Accounts On Payment By Customers)

The closing of allowance for doubtful accounts affects only Balance Sheet as there is decrease in Accounts Receivable and also the closing of Allowance for Doubtful Accounts by debited it. It does not have any effect on Income Statement / Profit And Loss Account as the estimated amount of Bad Debts (Doubtful Debts) may be less but always equal to the actual bad debts expense in total if nothing is recovered from customers for unpaid sales.

It is to be noted that when Writing Off Allowance for Doubtful Accounts or Uncollectible Accounts, it does not affect the Net Realizable Value Cash Realizable Value of Accounts Receivable and it remains the same before and after the write off.