Allowance for Doubtful Accounts (AFDA)

This is a sub-section of accounts receivable. It is called a contra account, because it goes against (or nets off) the receivables. The AFDA represents a reserve for those accounts receivable that you think you might not be able to collect. If you are sure that an account is a bad debt, you would simply remove it from the accounts receivable all together. However, if you have some accounts that you think but don't know for sure are uncollectible, you would credit this account and debit bad debts expense on the income statement. Notice that putting something in AFDA brings down the balance of the accounts receivable. That makes intuitive sense, as you do not think that these accounts are, in fact, collectible.

Incorporation Costs

When a company incorporates, there are costs involved, including registration costs and, sometimes, legal fees. These costs do not relate to any particular operating period. They encompass the entire life of the company. Therefore, these incorporation costs are capitalized (i.e., set up as an asset on the balance sheet). These costs are amortized over time (usually ten years) to slowly expense them over that period.

Government Remittances Payable

This category can encompass many items, depending on where you do business. In the us, it would include mainly payroll remittances and state sales taxes. In Canada, it would include GST, provincial sales taxes, and payroll remittances. In Britain, it includes the VAT.

The common element among all the items placed in this category is that these are amounts that are collected from customers or employees on behalf of one of the levels of government. You can think of government remittances payable as a trust account: you are holding these amounts in trust for the government. When you collect the taxes from customers or employees, you credit this account; and when you remit them to the government, you debit the account for the amount of the payment. Therefore, the balance in this account should reflect only those amounts that have been collected but not yet remitted.