A company will estimate how much of the receivables that they hope to get will in fact be uncollectible. Thus, the amount they set aside' for funds that they may never see are placed into two accounts. The first one which is considered an expense account is the Bad Debt Expense.
Work Step by Step
To counteract that, a new account called the Allowance for Doubtful Accounts is the one that would be placed on the balance sheet. Note that the use of the accounts is done only when a bad debit is realized and are not included on a balance sheet or income statement.