What is the double entry for provision bad debts?

The double-entry bookkeeping for creating a provision for bad debts (also called doubtful debts) involves debiting an expense account and crediting a liability account. Specifically:

* Debit: Bad Debt Expense (or Allowance for Doubtful Accounts – depending on the accounting method used)

* Credit: Allowance for Doubtful Accounts (a contra-asset account)

Explanation:

* Debit Bad Debt Expense: This increases the expense account, reflecting the estimated amount of receivables that are unlikely to be collected. This reduces net income for the period.

* Credit Allowance for Doubtful Accounts: This increases the allowance for doubtful accounts, a contra-asset account that reduces the value of accounts receivable on the balance sheet. It shows the estimated amount of receivables that are considered uncollectible.

Important Note: The Allowance for Doubtful Accounts is a contra-asset account, meaning it reduces the balance of another account (Accounts Receivable). It doesn't represent a cash outflow, but rather an estimate of potential future losses. The net value of accounts receivable (Accounts Receivable - Allowance for Doubtful Accounts) represents the company's best estimate of the amount of receivables it expects to collect.