What is the ADA?

ADA, short for Allowance for Doubtful Accounts, is a contra-asset account on the balance sheet that represents the estimated amount of accounts receivable that a company expects may not be collectible. It is established by recording an expense called Bad Debt Expense, which is necessary to match the revenue earned with the probable expenses of uncollectible accounts. ADA helps businesses report a more accurate valuation of their accounts receivable and ensures transparency in financial statements by reflecting potential losses from non-payment.