In order to present the receivables at their net realizable value, the Allowance for Doubtful Accounts, a contra asset account, is subtracted from the gross receivables.
The provision for questionable accounts is referred to as a "counter asset" since it reduces the value of an asset, in this example, the accounts receivable. The forecast made by management of the amount of accounts receivable that customers won't pay is known as the allowance, also referred to as a bad debt reserve. Untrustworthy accounts are advantageous. In the assets section of a company's balance sheet, immediately below the line item for "Accounts Receivable," the amount is listed as "Allowance For Doubtful Accounts." The expense of setting up a reserve for shaky accounts must be shown on your company's balance sheet. If the questionable debt turns out to be a bad debt in the end, you must record it as an expense on your income statement.
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