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Net Accounts Receivable: Allowance for Doubtful Accounts definitions

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  • Accounts Receivable
    Amounts owed by customers for credit sales, recorded as a debit balance and paired with a contra asset to reflect expected uncollectible amounts.
  • Allowance for Doubtful Accounts
    Contra asset account with a credit balance, used to estimate and offset potential losses from uncollectible receivables.
  • Bad Debt Expense
    Estimated loss from credit sales that are not expected to be collected, recorded to match expenses with related revenues.
  • Matching Principle
    Accounting guideline requiring expenses to be recorded in the same period as the revenues they help generate.
  • Contra Asset
    Account with a balance opposite to its related asset, used to reduce the asset's net value on the balance sheet.
  • Credit Sales
    Sales transactions where payment is deferred, creating accounts receivable for the seller.
  • Direct Write-Off Method
    Non-GAAP approach where uncollectible accounts are recognized only when deemed uncollectible, ignoring the matching principle.
  • Percentage of Sales Method
    Estimation technique where bad debt expense is calculated as a set percentage of total credit sales for the period.
  • Aging of Receivables Method
    Estimation approach analyzing receivables by age to determine the required ending balance in the allowance account.
  • Net Accounts Receivable
    Amount expected to be collected from customers, calculated as accounts receivable minus the allowance for doubtful accounts.
  • Uncollectible Accounts
    Receivables deemed unlikely to be collected, typically written off against the allowance for doubtful accounts.
  • Revenue
    Income generated from normal business operations, often recognized at the point of credit sales.
  • Debit Balance
    Normal balance for asset accounts, indicating the amount owed to the company.
  • Credit Balance
    Normal balance for contra asset and liability accounts, used to offset related debit balances.
  • Write-Off
    Accounting action removing uncollectible receivables from the books by reducing both the allowance and accounts receivable.