Question

12) At a recent board of directors meeting of Ascot , Inc., one of the directors expressed concern over the allowance for doubtful accounts appearing on the company's balance sheet. "I don't understand this account," he said. "Why don't we just show accounts receivables at the amount we should receive if we should them to a financial institution and get rid of that allowance account?"

how the basic principles of accounting relate to the analysis and presentation of accounts receivable

Answer 1

Companies are measuring accounts receivables by following 2 methods:

1. Allowance method: In this maintaining a contra-asset account A/c for bad debts i.e. Provision for doubtful accounts it is showing in Balance sheet.
2. Direct write off method: in this directly reduce the receivables A/c and creating bad debts A/c

If directly know the customer from whom you have not received the 2^nd method we can prefer by following conservative principle only upon conclusion of we will not receive at any cost & Time.

If you don’t know the specific customer and amount then 1^st method is preferable because amount may be realised in future. Then we can written back the provision for doubtful accounts.