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What is the general rule used to determine when it's appropriate to write-off an account receivable?...

What is the general rule used to determine when it's appropriate to write-off an account receivable?

Provide 2 indicators which would possibly indicate to you that a customer's account is uncollectible?

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Answer #1

General rule of writing off an account receivable is that when it is reasonably certain that an account receivable is uncollectable. Most firms, however, also have a specified cutoff period which may be something like 30, 60, 90, or 120 days, beyond which the firms must choose between two possible actions:

1) The company may choose to write off the obligation as bad debt or

2) The company may choose instead to refer the debt to their lawyers for legal action.

Firms may decide to write off a bad debt when it becomes clear for other reasons that the customer will never pay.

Indicators which indicate the customer's account is uncollectible-

1) When customer is declared as insolvent by a competent court or applied to be declared as insolvent.

2) When other creditors sue the customer due to the non-payment of debt.

3) When customer is not responding despite giving number of notice.

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