The Balance In Allowance For Doubtful Accounts Represents The Amount A Company Thinks It Will Not Collect From A Customer

True / False Question Answer With Brief Explanation: The Balance In Allowance For Doubtful Accounts Represents The Amount A Company Thinks It Will Not Collect From A Customer

The correct answer is "True", as Allowance For Doubtful Accounts represents such an estimation of percentage of amount of Accounts Receivable or Sales that may not be recovered from customers in future. It is assumed in allowance approach but not assumed in direct write-off method. For example, if the company / corporation sold goods of $50,000 to customers, then it is estimated on the basis of percentage of sales method that 2% of sales will not be collected from customers, which represent allowance for doubtful accounts (2 X $50,000 = $1,000). $1,000 is deducted from accounts receivables on balance sheet to calculate net realizable value of accounts receivable.