What is allowance for doubtful accounts?
The conservatism principle of accountancy teaches us to not anticipate any profits and be prepared to face business losses. Hence, is the requirement to make an allowance for doubtful accounts in accordance with this principle. A doubtful debt allowance is exactly what it sounds! It is buffer against any loss that may be incurred due to the non-payment by business debtors. It is an amount of money put aside by the business, to deal with the losses that may arise when the debtor is displays his inability to pay up. Apart from this, maintaining allowance for doubtful debts accounts is a requirement as per the U.S. GAAP. The Generally Accepted Accounting Principles (GAAP) lays down the requirement for creating an allowance for doubtful debts, in accordance with the matching principles along with the conservatism principle. How to Make the Allowance for Doubtful Accounts Entry? Let’s brush up some of our basic accounting knowledge, before proceeding to the matter of journal entry and allow
