Question

7/What is the purpose of the account Allowance for (SO2) Doubtful Accounts? Although the normal balance of this account is a credit balance, it sometimes has a debit alance. Explain how this can happen.

Answer 1

Allowance for doubtful debts: This account is created for recording the bad debt expenses of any organization. At the time of period ended or year ended we doesn’t know how many customer will not repay the money.

Example: If any customers have 1000 customer and chances of few customers will not repay there balance. So on the basis of past experiences company will take on the basis of aging or percentage basis or as he thinks suitable for make the provision.

So on this basis expenses of bad debts are claimed and liability of the same will created which that is always a credit balance .

Bad Debt Expenses   Debit

        To Allowance for doubtful debts Credit

But some time the expected prediction gone wrong and actual uncollectable or bad debt expenses are higher than its predictable than in that case so in this case if this account have more write off as per provision than its balance become debit.