The Allowance for Doubtful Accounts, which appears as a deduction from Accounts Receivable on a statement of financial position and which is based on an estimate of bad debts, is an application of the

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The Allowance for Doubtful Accounts is a way of applying the expense recognition principle, which requires expenses (such as bad debts) to be recognized in the period in which the related revenue is recognized (when the sale is made). By estimating and setting aside an allowance for bad debts, a company is recognizing the expense of potentially uncollectible accounts in the same period in which it recognizes the related revenue.

The Allowance for Doubtful Accounts, Which Appears as a Deduction