Question

What happens when the allowance for doubtful accounts has a debit balance? How does this impact accounts receivable and other accounts?

Answer 1

Solution:

Allowance for Doubtful Accounts: Normal balance in allowance for doubtful accounts have the credit balance. But if the actual uncollectable amount is more than the provision made for that then excess uncollectable amount is shown as debit balance in allowance accounts.

Example:

Balance in allowance for uncollectable is $ 10,000 (Credit Balance)

Actual uncollectable amount is now $ 12,000.

In this case Allowance for uncollectable amount is debited with $ 12,000 and Account receivable is credited with $ 12,000

So Account receivable will reduce by $ 12,000 and Allowance for doubtful accounts will show as $ 2,000 debit Balance.

Effect of this:

As per above explained this excess amount will reduced the account receivable for that period. And excess normal balance of uncollectable accounts will show as Debit balance.