Final answer:
AFDA stands for Allowance for Doubtful Accounts, a contra asset account that appears on the balance sheet. It represents an estimate of uncollectible accounts receivable. AFDA is subtracted from the total accounts receivable to reflect the net collectible amount.
Step-by-step explanation:
AFDA, which stands for Allowance for Doubtful Accounts, is a contra asset account that is used in accounting to estimate the portion of a company's accounts receivable that may not be collectible. This account is used in conjunction with accounts receivable to ensure that the value on the balance sheet reflects the estimated actual collection amounts. The AFDA is presented on the financial statements as a reduction from the total accounts receivable, thus showing the net amount expected to be collected.
On the balance sheet, the Allowance for Doubtful Accounts appears as a subtraction from gross accounts receivable. Therefore, it helps in presenting a more accurate view of a company's financial health. For example, if a company has $100,000 in accounts receivable and an AFDA of $5,000, the net accounts receivable that would appear on the balance sheet would be $95,000.