Allowance for bad debts

Definition:

Also called reserve for bad debts, it is an estimate of uncollectable customer accounts. It is known as a "contra" account because it is listed with the assets, but it will have a credit balance instead of a debit balance. For balance sheet purposes, it is a reduction of accounts receivable.

Related terms:

Right to Setoff

Net Profit Margin (NPM Pre-Tax)

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