The journal entry for the Allowance for Doubtful Accounts (ADA) involves debiting Bad Debt Expense (BDE) and crediting Allowance for Doubtful Accounts. This entry reflects an estimation of potential losses from accounts receivable that may not be collected. By recording BDE, which is an expense on the income statement, and increasing ADA, which is a contra-asset account on the balance sheet, the entry adjusts the financial statements to reflect a more accurate valuation of accounts receivable considering the likelihood of non-payment.
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