How can you make the allowance for doubtful accounts?

Allowance for doubtful accounts is a contra asset account that reduces accounts receivable. We must enter relevant amount on business balance sheet under asset 

We can use different methods for calculate allowance for doubtful accounts

Historical data - We can use percentage of bad debts which had in previous years and determine the bad debt reserve (For example - 5% of sales were uncollectible, say you have $ 50,000 in accounts receivable so your allowance for doubtful accounts would be $50,000x 5% = $2,500).

Aging of accounts receivable - We can group our outstanding accounts receivable by age (For example- say 8% of accounts receivable which are pending between 30 to 60 days are uncollectible and its worth $10,000, allowance for doubtful accounts would be $10,000x 8%= $ 800)

Journal Entry - Bad Debts Expense Debit $ 800, Allowance for doubtful accounts Credit $ 800