[abstruse]

Q) Can we describe "Allowance for Doubtful Account" as an Income statement account and a balance sheet account?

[morgaine300]

No one account can EVER be both an income statement and balance sheet account. You have five kinds of accounts: assets, liabilities, equity, revenue and expense. The revenues and expenses are on the income statement. The assets, liabilities and equity are on the balance sheet.

No account belongs to more than on category. If, for instance, an account is a liability, then it's a liability -- it cannot also be a revenue or an asset.

[abstruse]

Thanks morgaine300.

I have one more questions... Is the "Allowance for doubtful account" be described as "income statement" or "balance sheet accout"?

Thanks.

[morgaine300]

It's a contra asset. Where do your assets go? If you are into bad debt, you should be aware at this point that only revenues and expenses go on an income statement.

[dileepasampath]

I have different ideas...
"Allowance for doubtful account" (Provision for doubtful debt) is a liability account which you can deduct from "Trade Debtors" in the final presentation.
This account comes in to existence when you provide for doubtful debt from your trade debtors at the end of the financial year. (here you may create two accounts with the same name - "Allowance for doubtful account", one is an expense or income account (it depends on the provision of doubdtful debt in each year) and the other is a liability account.
First year----->
Allowance for doubtful account (Expense) Dr
Allowance for doubtful account (Liability) Cr
That may be where the confushion is.

Next year and so on------>
Calculate what would be the balance of your Allowance for doubtful account (Liability), based on the company policies on providing doubtful debts and put that as the balance (credit balance) of your Allowance for doubtful account (Liability). Then remaining balance of that account should be transferred to "Allowance for doubtful account (expense / or income)". Then it may become an income accout too... which is called over provision for doubtful debt.

Hope this is clear..

[morgaine300]

"Allowance for doubtful account" (Provision for doubtful debt) is a liability account which you can deduct from "Trade Debtors" in the final presentation.

A liability? How do you figure? It's a contra asset. It represents an estimate of a dollar amount the company doesn't think will be paid to them out of receivables, thereby reducing the realizable value of it. How does that become an obligation (liability) to someone else?

[dileepasampath]

I have use the term "Liability" to mean exactly what Morganie300 has mentioned. (we don't have an accont type called "Contra Asset" and it is not obviously a "Revenue" or "Equity" account. )
It is a deduction from Assets. In our countries we are normally not using the term "Contra Asset"
The term "Contra Asset" is anyway a fine term which would not mislead a beginer.

[morgaine300]

The fact that you don't use that term in your country doesn't mean the concept doesn't exist. It only means the term isn't used.

I teach the term contra account to beginners all the time and it does not mislead them, if they are taught what it means. In my country, the term is taught.

But regardless of the term used for it, you still haven't answered the question.

There are other people on here from your area and I've never seen them use the term liability in any other way than what I'm familiar with.

So how does it become a liability. Who is owed? To whom is there an obligation? You think a certain amount of receivables isn't going to be paid and somehow that gives you an obligation to someone else? How?

You haven't answered the question yet.

[dileepasampath]

Well. Lets replace the word "Liability" with "Contra Asset" in my original answer.

Thank you ponting out the error - I never told that it is not a "Contra Asset"

[dileepasampath]

I tried to help "Abstruse" by answering his question. If I have made a mistake in doing so, I always appriciate if some is there to point it out.

[rehmanvohra]

I am not sure but I assume that abstruse is reading from a British book.

The British authors recommend/suggest that there should two items on the income statement:

1. Bad debts actually written off and
2. Provision for doubtful debts.

There is no problem with the first but the second item looks weird when there is a decrease in the opening balance of the Provision account. This decrease is shown as an addition to the gross profit.

Even the Indian authors also use the same pattern in their texts.

Morgaine300 is right about the liability part