How do firms report accounts receivable?
ACCOUNTS RECEIVABLE
Firms report accounts receivable they expect to collect within one year at the amount of cash
the firms expect to receive. This amount may differ from the gross amount receivable from
customers because of estimated uncollectible accounts. Both U.S. GAAP and IFRS require
firms with significant uncollectible accounts receivable to estimate the amount of uncollectible
accounts related to a particular period's sales and recognize that amount as bad debt expense
in the same period as the related revenues. Firms typically use a contra account to accounts
receivable, such as Allowance for Uncollectibles, to reflect the amount of accounts receivable
they do not expect to collect. The entry to recognize estimated uncollectible amounts involves
a debit to Bad Debt Expense and a credit to Allowance for Uncollectibles. The write-off
of a particular customer's account that becomes uncollectible involves a debit to Allowance
for Uncollectibles and a credit to Accounts Receivable. Common terminology refers to this
accounting as the allowance method.
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Indicate whether the statement is true or false
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