What is an allowance for doubtful accounts and how is it reflected on the balance sheet?

This is a technical question that tests your understanding of accounting reserves, such as the Allowance for Doubtful Accounts. Accrual accounting methodology requires that certain reserves be made during a month, even if the cash impact occurs in a future month. For example, bad debt expense is recognized in the month of sale, even though it may be months until customer accounts are written off. The Allowance for Doubtful Accounts is a 'contra asset' that is netted against Accounts Receivable on the balance sheet.