Allowance for Doubtful Accounts
Also called: bad debt provision, expected credit loss, allowance for bad debts
The allowance for doubtful accounts is an estimate of receivables that will never be collected, deducted from the asset and charged to expense in advance. Because it's an estimate, it's a well-worn earnings lever: under-providing lifts profit today and forces a larger writedown later. Comparing the allowance to receivables over several years shows whether management's assumptions are drifting.