Allowance for Doubtful Accounts is a contra-asset account that estimates the portion of receivables that may not be collectible.
Bad debt refers to an amount owed by a debtor that is unlikely to be recovered, such as when a company goes into liquidation. The full amount should be written off to the profit and loss account of the relevant period or to a provision for bad debts upon identification, in line with accounting prudence principles.
A financial estimate calculated to cover debts deemed uncollectable during an accounting period. It distinguishes between general and specific provisions based on the likelihood of debt recovery.
Trade receivables, also known as accounts receivable or trade debtors, represent amounts owed to a business by its customers for invoiced amounts. These are classified as current assets on the balance sheet but are separate from prepayments and other non-trade debtors. A provision for bad debts is often shown against the trade receivables balance as per the prudence concept. This provision is based on the company's historical data of bad debts and its current expectations.
