What Do Debit Balances Mean in an Allowance for Doubtful Accounts?
A debit balance in an allowance for doubtful account means a business has an uncollectible debt. This account allows businesses to show the debt on a balance sheet.
Balance sheets show a business’ financial position including its income and debts owed. The balance sheet formula is: assets equal account receivables less liabilities. In double entry accounting, increases need to show in one account and offset by showing decreases in another. Bad debts show in account receivable accounts as a credit and in allowance for doubtful accounts as a debit. The accounting method allows a business to reduce their accounts receivable and give a more accurate view of their assets.