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What is the provision for bad debts?

The provision for bad debts might refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for Doubtful Accounts, or Allowance for Uncollectible Accounts. In this case, the account Provision for Bad Debts is a contra asset account (an asset account with a credit balance). It is used along with the account Accounts Receivable in order for the balance sheet to report the net realizable value of the accounts receivable.

Some companies might use the description provision for bad debts on its income statement in order to report the credit losses that pertain to the period shown on the income statement. In that case, it would be an the income statement account. AccountingCoach.com prefers that the income statement account have the title of Bad Debt Expense or Uncollectible Account Expense.