Allowance for doubtful account

Allowance for doubtful account (allowance for bad debts/ allowance for collectible account) is a contra current asset account associated with account receivable.

Net account receivable  = account receivable – allowance for doubtful account

Allowance for doubtful account is not expected to be collected
On a company's balance sheet, allowance for doubtful account is listed as a deduction immediately below the accounts receivable line item
Allowance for doubtful account represents management’s best estimate of the amount of accounts receivable that will not be paid by customers. 
For example, a company records $10,000,000 of sales to several hundred customers, and projects (based on historical experience) that it will incur 1% of this amount as bad debts, though it does not know exactly which customers will default. It records the 1% of projected bad debts as a $100,000 debit to the Bad Debt Expense account and a $100,000 credit to the Allowance for Doubtful Accounts. The Bad Debt Expense is charged to expense right away, and the Allowance for Doubtful Accounts becomes a reserve account that offsets the account receivable of $10,000,000 (for a net receivable outstanding of $9,900,000). The entry is:

	Debit	Credit
Bad Debt Expense	100,000
Allowance for Doubtful Accounts		100,000

Later, several customers default on payments totaling $40,000. Accordingly, the company credits the accounts receivable account by $40,000 to reduce the amount of outstanding accounts receivable, and debits the Allowance for Doubtful Accounts by $40,000. This entry reduces the balance in the allowance account to $60,000. The entry does not impact earnings in the current period. The entry is:

	Debit	Credit
Allowance for Doubtful Accounts	40,000
Accounts Receivable		40,000

A few months later, a collection agency succeeds in collecting $15,000 of the funds that the company had already written off. The company can now reverse part of the previous entry, thereby increasing the balances of both accounts receivable and the allowance for doubtful accounts. The entry is:

	Debit	Credit
Accounts Receivable	15,000
Allowance for Doubtful Accounts		15,000