Allowance for Doubtful Accounts Policy
Allowance for Doubtful Accounts is the estimation of N et Sales or closing balance of Accounts Receivable in order to find out N et Realizable Value of Accounts Receivable . It is the requirement of Matching Principle , so that Sales must be matched with Uncollectible Accounts Expense / Doubtful Debts . For this purpose, allowance for doubt accounts policy is adopted to check credit sales with customers so that there should be less chance of Bad Debts Written Off . There are Three Types of Allowa nce for Doubtful Accounts Policy (i) Sound Credit Policy Such policy is adopted when the company wants to increase credit sales with those customers who are reliable in making payment based on their past experiences and dealings with the company. Maki ng a Sound Credit Policy e ncourages customers to make credit sales as much as they like. As a result, many customers make credit sales and hence the amount of unpaid invoices increases. The mana...