Question

Please help me with my accounting final study guide by providing a definition and any useful information for the following accounting terms:

• uncollectible account

• accounting for uncollectible accounts

• allowance method

• allowance for doubtful accounts

• bad debts expense

Answer 1

1. Uncollectible account - There are different customers to whom a firm makes a credit sales in the normal course of business. It may happen that a firm has 10 different customers with whom it makes credit sales. Now uncollectible account is the customer from whom the firm cannot recover the money. hence, the customers from which a firm cannot recover its amount is called as an uncollectible account.

2. Accounting for uncollectible accounts - Uncollectible accounts as explained above need to be recognised & same needs to be recorded in the books of accounts of the firm also for fair reporting purposes. Recording the same in the books of accounts as per generally accepted accounting principles is called accounting for uncollectible accounts.

3.Allowance method - It is method of estimating the amount which the management considers to be uncollectible on the basis of its estimates & forecasts. The management estimates the amount that will not be collected from its debtors & such amount is deducted from the debtors balance so that it is reported at realizable value.

4. Allowance for doubtful accounts - This account is created by debiting the bad debt expense & crediting the allowance for doubtful account. It is a contra current asset account & when the credit balance of this account is reduced from the debtors balance, the debtors balance then reflects the net realizable value.

5.Bad debt expense - Whenever a firm makes a credit sales to its customers, they become the debtors of the firm & there is always an uncertainity that he may not make the payment in the future. When this happens, it is a loss to the firm & this loss is called as bad debt expense.

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