Bad debts, bad to the bone — Assessing the allowance for doubtful accounts
Abstract: Borrowers frequently pledge accounts receivable as collateral. But what’s on the balance sheet might not be what the borrower collects — even if the business sets aside an allowance for doubtful accounts. These allowances are subjective and can be difficult to audit, especially in uncertain economic times. This article discusses the direct write-off and allowance methods for assessing an allowance for doubtful accounts, along with the likelihood of collectibility for aging receivables.