Allowance Method
Accounting glossary · Understand, connect, apply
The allowance method recognizes estimated credit losses on receivables through an allowance account rather than waiting until every specific default is known.
Example
Receivables of $10,000 with a required $300 allowance are presented at a net $9,700, subject to the reporting framework.
Remember the difference
The required expense adjustment depends on the existing allowance balance. Modern standards may require forward-looking expected-credit-loss estimates.
Updated 3 November 2026. Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
← Return to the accounting glossary