Allowance Method For Uncollectible Accounts Or Doubtful Debts And Bad Debts Expense
Under Allowance Method, we estimate (based on Accounts Receivable Aging Report ) that a percentage of Accounts Receivable may not be recovered from our customers. So we record the Accounts Receivable at net realizable value (Calculated by deducting the Closing Balance of Allowance for Doubtful Accounts From Closing Balance of Accounts Receivable) on Balance Sheet in order to give true and fair view of Financial Statements to the Users of Financial Statements . Under this approach, we basically follow Matching Principle Gaap which is the requireme nt of Generally Accepted Accounting Principles (GAAP) that matched our expenses with revenues, i.e., Matching Sales with Uncollectible Accounts Expense. This Method is also K nown as Provision Method, Projected Write Off Method or Specialized Write Off Method. For Example, if we sold goods worth Rs. 30000 to Mr. A on 1 st July, 2108, unpaid amount collectible in 2 months, then based on past experiences, w...