Although Allowance for Doubtful Accounts normally has a credit balance, it may have either a debit or a credit balance before adjusting entries are recorded at the end of the accounting period.

Question

Quizplus · Accepted Answer

Allowance for Doubtful Accounts may have a debit balance if the actual amount of bad debts exceeds the estimated allowance, or if the allowance was not adjusted when previously estimated bad debts were written off. It may also have a credit balance if the estimated allowance was too high or there were fewer actual bad debts than estimated. However, the balance is typically adjusted to ensure that it reflects the estimated amount of uncollectible accounts at the end of the period.

Although Allowance for Doubtful Accounts Normally Has a Credit Balance