Are uncollectible accounts receivable a normal cost of doing business

Expert Solution

Uncollectable Accounts receivables are Common in every business but to classify it as normal cost ,it will need a certain percentage of anticipated bad debts for which provisions are created every year .

When Bad Debts are higher than expected percentage then it becomes abnormal costs or losses

If major portion of receivables are uncollectable it will lead the organisation into serious losses and Such costs can never be considered as normal costs.They are certainly abnormal losses which after writing off will affect and reduce the profits badly and the liquidity position of the organisation will be in question

So not all or major part of receivables that are uncollectable are normal costs

Only those that are a very small percentage of Receivables(anticipated bad debts) that recur every year can be treated as normal costs for which normally provisions are made based on previous years estimates

ekkarill92 answered 2 years ago

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