Doubtful AccountsDoubtful accounts

Doubtful Accounts

Doubtful accounts are the accounts receivable which are likely to be uncollected or, in other words, these are potential bad debts.

Accounting for Bad Debts

There are two methods of accounting for bad debts:

Direct Write-off Method
Allowance Method
Briefly stated, the direct write-off method directly writes off accounts receivable against income. This method is not according to GAAP because it often violates the matching principle of accounting. The allowance method estimates doubtful debts and transfers them to a reserve account before they are actually determined as uncollectible. Allowance method is according to GAAP.