Q:

What do debit balances mean in an allowance for doubtful accounts?

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Quick Answer

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.

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Full Answer

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.

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Related Questions

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    Why is a trial balance used?

    A:

    A trial balance is used to check the accuracy of all ledger accounts normally at the end of an accounting period; the worksheet divides a company's accounts into credit and debits in an easy to read format. The balance sheet's aim is to equate the numbers in the two columns until both sections are equal, ensuring that there are no discrepancies or mathematical errors, as noted by Investopedia.

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  • Q:

    How does the statement of cash flows relate to the balance sheet?

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    The figures found in the statement of cash flows are pulled directly from the changes in balance sheet accounts throughout the year for a company, explains John A. Tracy from the "Accounting Workbook For Dummies." The increases and decreases in balance sheet accounts are the foundation for preparing a statement of cash flows because they drive the amounts shown in the statement.

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    What is the purpose of closing entries?

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    The purpose of closing entries is to transfer financial data from temporary accounts to the balance sheet or income statement. As part of this, the temporary accounts are balanced to zero so that data is not carried over to the next accounting period.

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    What is a business debt schedule?

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    A business debt schedule consists of a detailed list of the debt the business has incurred, such as loans, contracts, leases and notes payable, according to Fundera. The business debt schedule typically only includes long-term debt versus daily expenses incurred by a company.

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