Question

What Items Would Be Reliable and Unreliable Sources for Determining the Adequacy of The Allowance for Uncollectible Accounts?

Answer 1

Accounts uncollectable : It refers to the amount of money which is doubtful to be collected from the debtors/receivables that the company's management does not expect to be collected.

Reliable sources of uncollectable accounts :

• Time based debts : is a reliable source of determining the uncollectability of accounts.
• Bankruptcy : if the party is declared bankrupt then the accounts will be uncollectible and his financial situation is reliable source.
• Contingency : if the debtors and the entity are contingent regarding the amount to be paid and notice has been received from debtors, such notice is a reliable source.
• Legal dispute : any legal case landing between both the parties regarding the accounts uncollectible, is also a reliable source.

Unreliable source of uncollectible accounts :

• Internal controls : if the entirety has poor internal control system for writing off uncontrollable accounts without approval from management.
• Uncollectible accounts has been entered into books of accounts without any written confirmation from the debtors/receivables.
• Amount entered in the books of accounts without "ageing of the debtors".