Day 63: Introduction to Receivables

Receivables

• amount to be collected in future
• not all gets collected
• need to account for uncollectibles
• direct write-off
• violates matching principle
• write off when know who isn't paying
• overstates assets and revenues
• ok to use if small company with few receivables
• allowance method
• estimates bad debt at end of accounting period
• records bad debt in same period as related revenues
• two methods
• % of sales
• aging of A/R