An Accounts Receivable allowance account (Allowance for Doubtful Accounts) is a contra account to your main Accounts Receivable account. It works similar to an accumulated depreciation account for fixed assets.

Usually on an annual basis you estimate an amount of receivables that you would not collect as to try to match revenues and expenses reported for the current year end. So if you had $1,000,000 in receivables and you estimate that 2% will not be collectable; then you would debit your Bad Debts Expense Profit and Loss Statement account for $20,000 and Credit the Allowance account for the same amount.

When you go to write off a specific invoice receivable using the Refunds & Credits option the amount is properly entered to expense as it should (system defaults), but you will have to do a manual journal entry to adjust the allowance account balance for the specific amount of the write-off (Debit Allowance Account and Credit the Expense account).

Alternatively:

You can do a manual journal entry Credit- Accounts Receivable and Debit- Allowance account. Just be certain to enter the correct customer name in the journal entry fields and then clear the entry to the outstanding amount.