Why Is An Uncollectible Account Recorded As An Expense / Loss Rather Than A Reduction In Revenue

Uncollectible Account Expense Is Recorded As An Expense Or Loss But Not A Reduction In A Revenue

When there is a Sales On Account, then there are chances that a certain amount of Sales or Accounts Receivable remain uncollectible from customers. So Uncollectible Account Expense is recorded as as an Expense or loss but not a Revenue as it is related to which amount of sales or accounts receivable which is expected not to be collected from customers when the sales on account is made. According to Matching Principle, we match all the revenues with the expenses incurred in earning those revenues for the period.

Revenues Are Recorded When Earned by the business whether the cash is received or not according to Accrual Basis of Accounting.

Example, a company sold merchandise of Rs. 50000 on account to customers. 2% of sales are expected not to be collected from customers based on Accounts Receivable Aging Report. So, to match sales on account of Rs. 50000 with uncollectible accounts expense of Rs. 1000 (2% X 50000 = Rs. 1000), we record uncollectible accounts expense for the period to match it with sales on account / credit sales.

Uncollectible accounts expense is the esitmated amount of expense or loss resulted from the sales on account made to customers and recorded in Income Statement.

So, uncollectible account is recorded as an expense rather than a reduction in revenue.