Question

if 5% of accounts receivable will be uncollectible, and your current accounts receivable balance is $20,000 how much in" net accounts receivable "should be on the balance sheet?

Answer 1

Net Accounts Receivable will be $19000.

Because, the accountant is arising a doubt on the collection of some debts. In this case, the accountant will make a provision on that doubtful debt for make up the future loss. It is under Conservatism or Prudence concept. As per conservatism Principle, all expected loss should be recorded but expected revenues should not be recorded.

In this case, accountant is arising a doubt on 5% of accounts receivable. Therefore, as per conservatism principle, an amount equal to the uncollectable amount will be transfer to 'Provision for doubtful debts Account'. And the same will be deducted from 'Accounts Receivable' in the balancesheet.

Therefore, amount transfered to Provision = $20000*5/100 = $1000

And value of Net Accounts Receivable in the balancesheet at the year end = $20000 - $1000 = $19000

If there is any doubt,please commend.

And have a nice day