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What is the accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable?
Wiki User
∙ 11y ago
Setting up an allowance for uncollectible accounts is an application of the Principle of Conservatism. The idea is that when there are uncertain outcomes, you don't want to make the company look "too good," because that might mislead financial statement users.
Wiki User
∙ 11y ago
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What is the percentage-of-receivables method?
The percentage-of-receivables method is a way for a company to estimate its Allowance for Uncollectible Accounts and Bad Debt Expense. It is considered a "Balance Sheet Approach," because total Allowance for Uncollectible Accounts is estimated as a percent of total Accounts Receivable. Bad Debt expense then becomes the increase between the previous year's Allowance and the current year's Allowance.
On the balance sheet the amount shown for the Allowance for Doubtful Accounts is equal to the?
total estimated uncollectible accounts as of the end of the year
Should a provision for receivables be included in the aged receivables listing?
yes. the list includes percentenge for the uncollectible eg. 2% 5%...... which depends how many days the AR is past due and the corresponding estimated uncollectible which is the provision for receivables.
What condition must be met for a transfer of receivable to be accounted for as a sale in accounting term derecognized?
a. Conditions must be met for a transfer of receivables to be accounted for as a sale: Three conditions are transferor surrenders control of the future economic benefits of the receivables, transferor's obligation under the recourse provision can be reasonably estimated, and the transferee can require the transferor to repurchase the receivables.
Is Allowance For Doubtful Accounts and Accumulated Depreciation Similar?
Yes.... and no. I guess it depends how you are meaning this, specifically. They are both "contra-asset" accounts, however, they are for different things. Allowance for Doubtful Accounts ("ADA") is the estimated amount of your accounts receivable (the money that people owe you) that you suspect will not be paid. Accumulated Depreciation is the total depreciation on your asset (building, equipment, etc. -- NOTE: Land does NOT depreciate.) since you record the asset at its historical cost (the amount you paid for it). So, while both are contra-asset accounts, they have very different uses behind them.
What is the percentage-of-receivables method?
The percentage-of-receivables method is a way for a company to estimate its Allowance for Uncollectible Accounts and Bad Debt Expense. It is considered a "Balance Sheet Approach," because total Allowance for Uncollectible Accounts is estimated as a percent of total Accounts Receivable. Bad Debt expense then becomes the increase between the previous year's Allowance and the current year's Allowance.
What is percentage of receivables method?
The percentage-of-receivables method is a way for a company to estimate its Allowance for Uncollectible Accounts and Bad Debt Expense. It is considered a "Balance Sheet Approach," because total Allowance for Uncollectible Accounts is estimated as a percent of total Accounts Receivable. Bad Debt expense then becomes the increase between the previous year's Allowance and the current year's Allowance.
On the balance sheet the amount shown for the Allowance for Doubtful Accounts is equal to the?
total estimated uncollectible accounts as of the end of the year
In profit and loss statement where do you record bad debts?
In a profit and loss statement, bad debts are recorded as an expense. They are typically included in the "depreciation and bad debt" or "allowance for bad debts" category. This category is a deduction from revenues to reflect the estimated amount of uncollectible debts.
Should a provision for receivables be included in the aged receivables listing?
yes. the list includes percentenge for the uncollectible eg. 2% 5%...... which depends how many days the AR is past due and the corresponding estimated uncollectible which is the provision for receivables.
Allowance for doubtful accounts is a fixed or current asset?
The Allowance for Doubtful Accounts is a general ledger account set up to estimate the dollar amount of accounts receivable that a business does not expect to collect from customers.It works this way: A business sells 4 widgets to Customer A for $20.00 on credit and 1 widget to Customer B for another $5.00 on credit (assume that these two sales are the only sales that the company makes in the entire accounting period). Until one of the customers pays, the company has total Accounts Receivable of $25.00 ($20.00 due from Customer A and $5.00 from customer B).However, the business must take into account the likelihood that some customers who owe it money will not pay. For example, a customer may go out of business before paying. So the business owner wants to estimate how much of its total Accounts Receivable he thinks will actually be collected. He estimates the total amount owed by customers who probably will not pay (but remember that they might pay, so he doesn't want to completely take the debt off the books yet), and he records that amount as a debit to Estimated Bad Debt account, with the credit going to a separate account called Allowance for Doubtful Accounts.When one combines the debit balance shown in the Accounts Receivable account and the credit balance shown in the Allowance for Doubtful Accounts, the net result is the amount of total customers' debt that the business' management realistically believes the business will be able to collect.DR Balance in Accounts Receivable Accountnet ofCR Balance in Allowance for Doubtful Accounts= the net amount that the company expects to collect as of the balance sheet date(and this is the single amount that is reported as "Accounts Receivable" on the company's balance sheet.)Accounts Receivable is classified as a current asset, because it is assumed that the NET collectible receivables will be collected within one year of the balance sheet date.Allowance for Doubtful Accounts is a valuation account used to estimate the dollar amount of uncollectible Accounts Receivable as of the balance sheet date.A general ledger account and its associated valuation account (if any) are always classifed in the same way. Accordingly, since Accounts Receivable is a current asset (which is generally the case), so is its related valuation account, i.e., Allowance for Doubtful Accounts.
How could an organization have a tax receivable?
An organization can have a tax recievable when it has paid a larger estimated tax the refund is put into recievable
How do you estimate uncollectible accounts on the basis of net credit sales?
Uncollectable accounts may be estimated as a certain percentage of net credit sales or may be estimated on basis of past experiance as well as un-payable time by making uncollectable aging schedule.
What condition must be met for a transfer of receivable to be accounted for as a sale in accounting term derecognized?
a. Conditions must be met for a transfer of receivables to be accounted for as a sale: Three conditions are transferor surrenders control of the future economic benefits of the receivables, transferor's obligation under the recourse provision can be reasonably estimated, and the transferee can require the transferor to repurchase the receivables.
Is Allowance For Doubtful Accounts and Accumulated Depreciation Similar?
Yes.... and no. I guess it depends how you are meaning this, specifically. They are both "contra-asset" accounts, however, they are for different things. Allowance for Doubtful Accounts ("ADA") is the estimated amount of your accounts receivable (the money that people owe you) that you suspect will not be paid. Accumulated Depreciation is the total depreciation on your asset (building, equipment, etc. -- NOTE: Land does NOT depreciate.) since you record the asset at its historical cost (the amount you paid for it). So, while both are contra-asset accounts, they have very different uses behind them.
What is the meaning of Scrap Value in accounting?
scrap value is the residual value of an asset. the valu of an asset which exists after its estimated life period
Journal entries of provision for doubtful debts?
The provision for doubtful debts is also known as the provision for bad debts and the allowance for doubtful accounts.The provision for doubtful debts is identical to the allowance for doubtful accounts. The provision is the estimated amount of bad debt that will arise from accounts receivable that have not yet been collected. The provision is used under accrual basis accounting, so that an expense is recognized for probable bad debts as soon as invoices are issued to customers, rather than waiting several months to find out exactly which invoices turned out to be bad debts. Thus, the net impact of the provision is to accelerate the recognition of bad debts.You typically estimate the amount of bad debt based on historical experience, and charge this amount to expense with a debit to the bad debt expense account (which appears in the income statement) and a credit in the provision for doubtful debts account (which appears in the balance sheet). You should make this entry in the same period when you bill the customer, so thatrevenues are matched with all applicable expenses (as per the matching principle).The provision for doubtful debts is an accounts receivable contra account, so it should always have a credit balance, and is listed in the balance sheet directly below the accounts receivable line item.Later, when you identify a specific customer invoice that is not going to be paid, you eliminate it against the provision for doubtful debts. This can be done with a journal entry that debits the provision for doubtful debts and credits the accounts receivable account; this merely nets out two accounts within the balance sheet, and has no impact on the income statement. If you are using accounting software, you would create a credit memo in the amount of the unpaid invoice, which creates the same journal entry for you.
