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  • Accounts Receivable: An Introduction

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    ajish
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    Accounts receivable (A/R) allows companies to increase sales and profits by extending credit to customers, rather than requiring upfront cash payments. Bad debt refers to amounts owed by customers that become uncollectible, such as when a customer declares bankruptcy. To account for potential bad debt, companies estimate the amount of accounts receivable that may not be collectable based on existing customer data and economic conditions, and record this estimated amount as a bad debt expense to create a reserve in anticipation of unrecoverable debts.

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    Bad debts

    Original Title

    Bad debts

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    Accounts receivable (A/R) allows companies to increase sales and profits by extending credit to customers, rather than requiring upfront cash payments. Bad debt refers to amounts owed by customers that become uncollectible, such as when a customer declares bankruptcy. To account for potential bad debt, companies estimate the amount of accounts receivable that may not be collectable based on existing customer data and economic conditions, and record this estimated amount as a bad debt expense to create a reserve in anticipation of unrecoverable debts.

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    © All Rights Reserved
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    8 views2 pages

    Accounts Receivable: An Introduction

    Uploaded by

    ajish
    Accounts receivable (A/R) allows companies to increase sales and profits by extending credit to customers, rather than requiring upfront cash payments. Bad debt refers to amounts owed by customers that become uncollectible, such as when a customer declares bankruptcy. To account for potential bad debt, companies estimate the amount of accounts receivable that may not be collectable based on existing customer data and economic conditions, and record this estimated amount as a bad debt expense to create a reserve in anticipation of unrecoverable debts.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as ppt, pdf, or txt
    of 2

    Accounts Receivable: An introduction

    Why do company’s use A/R? why not do only cash?

    • Increases sales
    • Increases profits

    What is bad debt?

    • When customers fail to pay off their debt (e.g. bankruptcy)

    1
    Accounting for Bad Debt
    Columbo Company’s customers owe a total of $100,000.
    After analyzing the existing data and the current economy, it has
    been determined that $5,000 of the accounts receivable may
    not be collectable.
    Therefore we create a nest egg in AFDA as the bad debt hasn’t
    occurred yet.

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