Allowance for Doubtful Accounts represents
A)cash set aside to make up for bad debts losses.
B)the amount of uncollectible accounts written off to date.
C)the difference between total sales made on credit and the amount collected from those credit sales.
D)the difference between the gross amount of accounts receivable and the net realizable value of accounts receivable.

Question

Quizplus · Accepted Answer

Allowance for Doubtful Accounts is a contra asset account that represents the estimated amount of accounts receivable that may not be collected. It is the difference between the gross amount of accounts receivable and the net realizable value of accounts receivable. Option A is incorrect because cash isn't set aside until the actual debts become uncollectible. Option B is incorrect because it represents the amount actually written off, not the estimated amount. Option C is incorrect because it doesn't consider the estimated uncollectible accounts.

Allowance for Doubtful Accounts Represents