Bad Debts and debt doubtful accounts?

A bad debt expense is the actual cost that is occurred by your company due to your accounts receivable accounts not paying the full amount due. This number is a direct representation of these expenses. The allowance for doubtful accounts is an estimate before the billing period to set aside money to be able to cover these delinquent accounts. The 2% of sales is the estimate that this company is using. At year end, the company sees that the 2% of sales is $43,000 thus their allowance for doubtful accounts is that amount. The actual bad debt at year end was $59,000. There is no real way to get this exact. You just have to guess and hope that you set aside enough money.