Accounting...Question??
Which of the two methods of estimating uncollectibles provides for the most accurate estimate of the current network realizable effectiveness of the receivables?
Answers:
The allowance for doubtful debts is usually made base on a review of the aged address list of accounts receivable. Situations that may require the establishment of an allowance:
a. A receivable will not be totally collected
b. A debtor have file for bankruptcy
c. An estimate should be base upon the aged receivables over 180 days delinquent and the receivable is deem uncollectible
The above assumes that someone if truth be told looks into individual debtor balance. If in that are too plentiful debtors to allow this method of making allowances, some companies use the following method, but it is still base on the aged register of AR. For e.g. a company could arrive at the amt for the allowance by applying the following percentage to the expand invoices:
Current - 2%
1-30 Days Past Due - 5%
31-91 Days Past Due - 20%
91-180 Days Past Due - 40%
181-360 Days Past Due - 60%
Over 360 Days Past Due - 90%
The allowance represents the dollar amount of unfold invoices i.e. estimated to be uncollectible.
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Answers:
The allowance for doubtful debts is usually made base on a review of the aged address list of accounts receivable. Situations that may require the establishment of an allowance:
a. A receivable will not be totally collected
b. A debtor have file for bankruptcy
c. An estimate should be base upon the aged receivables over 180 days delinquent and the receivable is deem uncollectible
The above assumes that someone if truth be told looks into individual debtor balance. If in that are too plentiful debtors to allow this method of making allowances, some companies use the following method, but it is still base on the aged register of AR. For e.g. a company could arrive at the amt for the allowance by applying the following percentage to the expand invoices:
Current - 2%
1-30 Days Past Due - 5%
31-91 Days Past Due - 20%
91-180 Days Past Due - 40%
181-360 Days Past Due - 60%
Over 360 Days Past Due - 90%
The allowance represents the dollar amount of unfold invoices i.e. estimated to be uncollectible.