How to Book Allowance for Doubtful Accounts Journal Entry

Allowance for Doubtful Accounts (AFDA) is an account used to record the estimated amount of customer accounts that may not be collected. It is a contra-asset account, meaning it is a negative asset account that offsets the Accounts Receivable balance. There are two steps to recording AFDA.

First, the company estimates the amount of AR that may be uncollectible and creates the reserve with an associated bad debt expense. For example, if a company has Accounts Receivable of $100,000 and estimates that $10,000 of those accounts may not be collected, the Allowance for Doubtful Accounts journal entry is:

Debit Bad Debt Expense $10,000
Credit Allowance for Doubtful Accounts $10,000

When the company determines that a particular account is uncollectible (having exhausted collection efforts), the account is written off against the allowance. For example, if a company wishes to writeoff a specific customer balance of $5,000, the journal entry is:

Debit Allowance for Doubtful Accounts $5,000
Credit Accounts Receivable $5,000