The balance in the Allowance for doubtful debts account represents:
A) bad debts written off in the current accounting period.
B) liquid funds available to meet losses arising from customers becoming insolvent.
C) an amount that is deducted from the Accounts receivable account to reduce it to the estimated realisable value.
D) bad debts written off as Accounts receivable considered uncollectable.

Question

Quizplus · Accepted Answer

The Allowance for doubtful debts account is a contra-asset account that is used to reduce the Accounts receivable account to its estimated realisable value. The balance in this account represents the estimated amount of losses the company expects to incur from customers not paying their debts. This estimation is based on historical data and the creditworthiness of customers. The balance in the account is not liquid funds, nor does it represent bad debts written off in the current period.

The Balance in the Allowance for Doubtful Debts Account Represents