Accounts Reconciliation Blog

When a company estimates that there is a high enough risk that certain accounts receivable may not paid or collected from customers, they are labeled as doubtful accounts. An accounts payable allowance for doubtful accounts represents the estimated total amount of accounts receivable that are considered doubtful. This process of approximating and forecasting doubtful accounts is an early-warning system for possible future bad debts.

Bad debts are those former doubtful accounts receivable that are now treated as having little or no prospects for collection. When bad debts are written off, they are removed from both the accounts payable allowance for doubtful accounts and the accounts receivable listing.