How does one typically increase the balance of the allowance for doubtful accounts?

The allowance for doubtful accounts is a contra asset account that is used to estimate and account for potential losses due to uncollectible accounts receivable. To increase the balance of this account, one would typically credit the allowance for doubtful accounts.

When a company recognizes that it may not collect all of its receivables, it needs to adjust its financial statements to reflect this reality. By crediting the allowance for doubtful accounts, the company is effectively acknowledging the estimated amount of receivables that it does not expect to collect. This credit increases the balance in the allowance account, providing a more accurate representation of the amount that is expected to be collectible.

The process typically involves an adjusting journal entry, where an expense is debited—often an account called "Bad Debt Expense"—and the allowance for doubtful accounts is credited. This dual-entry method ensures that the income statement reflects the anticipated losses, while the balance sheet reports the net realizable value of the accounts receivable accurately.

In contrast, debiting the allowance account would decrease its balance, writing off accounts directly reduces both accounts receivable and the allowance account, and adjusting the bank's cash balance does not pertain to the allowance for doubtful accounts.