when a lender confirms that a specific loan balance is in default the company reduces the allowance for doubtful accounts balance it also reduces the loan receivable balance because the loan default is no longer simply part of a bad debt estimate 
adjustment considerationsthe allowance for bad debt always reflects the current balance of loans that are expected to default and the balance is adjusted over time to show that balance suppose that a lender estimates 2 million of the loan balance is at risk of default and the allowance account already has a 1 million balance then the adjusting entry to bad debt expense and the increase to the allowance account is an additional 1 million 