Question

How does uncollectible accounts expenses impact what is reported toward net accounts receivables?

Answer 1

Uncollectible accounts expense is a charge/expense debited to Profit and Loss account when a customer defaults on a payment or in other words when a payment for account receivable is not received. A more conservative approach is to charge an estimated amount to expense when a sale is made; doing so matches the expense to the related sale within the same reporting period.

Uncollectible accounts expense is also known as bad debt expense.

Under allowance method of recognizing uncollectible accounts expense an estimate is made on uncolletible accounts and a provison for same is made by debiting Uncollectible accounts expense account and credting the allowance account.

At the time of preparation of balance sheet allowance is shown as deduction to gross amount of receivables, as shown below:

Account Receivables	xxx
Less: Allowance for uncollectible accounts	(xxx)	xxx

Thus, this expense will actually reduce the amount of accounts receivables and resulting amount is called net receivables. If allowance method is not followed then actual amount of bad debts will be deducted from gross receivables resulting into net receivables.

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