How to Increase and Decrease Allowance in Journal Entries

by Bryan Keythman

A company uses an "allowance for bad debts" account in its accounting journal to record the dollar amount of its accounts receivable expected to be uncollectible. Accounts receivable is the dollar amount of outstanding invoices from customers that purchased the company's products or services on credit. You may increase an allowance for bad debts account at the end of each accounting period by the amount of accounts receivable that you estimate will be uncollectible. You also may decrease the allowance account to write off a specific account receivable when you determine that a specific customer cannot pay.

Write "Bad Debts Expense" in the account description column on the first line of a new journal entry in your accounting journal, and write the dollar amount of accounts receivable you estimate will be uncollectible in the debit column. This increases the bad debts expense account. For example, at the end of an accounting period, if you estimate that $20,000 of accounts receivable will be uncollectible, write "Bad Debts Expense" in the account description column and "$20,000" in the debit column.

Write "Allowance for Bad Debts" in the account description column on the second line of the same journal entry, and write the same dollar amount of the estimated uncollectible amount in the credit column. This increases the allowance for bad debts account and balances the journal entry with an equal amount of debits and credits, which is required for a journal entry. The allowance for bad debts account also reduces accounts receivable on your balance sheet. In this example, write "Allowance for Bad Debts" in the account description column and "$20,000" in the credit column.

Write "Allowance for Bad Debts" in the account description column on the first line of a new, separate journal entry and the amount of a specific uncollectible account receivable in the debit column any time you determine that a specific account receivable will be uncollectible. This decreases the allowance for bad debts account. For example, if you determine that a $2,000 specific account receivable is uncollectible, write "Allowance for Bad Debts" in the account description column and "$2,000" in the debit column.

Write "Accounts Receivable" in the account description column on the second line of the same journal entry, and write the same amount of the specific uncollectible account receivable in the credit column. This writes off the uncollectible account and reduces your accounts receivable balance. In this example, write "Accounts Receivable" in the account description column and "$2,000" in the credit column.

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