Why there is a need to estimate uncollectible accounts receivable? Explain

Expert Solution

Account receivable:

The entity makes sales on credit terms. That Amount will be collected in near future. ie, Account receivables are assets of the entity.

Uncollectible Account Receivable:

Uncollectible Account receivables mean that the receivable not collectible in the future called bad debt. so receivable and Uncollectible Account Receivable is different natures. An account receivable is an asset but uncollectible Account receivable are not an asset.

Need for calculating uncollectible account receivable:

All accounting is done using the matching principle. If we record revenue should record expenses related to such revenue in the current year itself.

there are two methods used for account uncollectible account receivable

1) Direct method:

All uncollectible account receivables deducted from account receivables.

2) Indirect method/Provision

For uncollectible receivables create provision. Charging to Profit and loss account with out deducted for acccoun receivables.

ekkarill92 answered 1 year ago

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