Question

Janet works in the credit department handling accounts receivable transactions. At the end of each period, the allowance for uncollectible accounts has a larger and larger debit balance. What may be going wrong here? What possible corrections should be made?

Answer 1

The amount of bad debt estimation is not correct. This is the reason there's not enough credit balance in the Allowance for Uncollectible Accounts and writing off Accounts Receivable is exceeding the credit balance, resulting in larger and larger debit balance at the end of each year.

Janet shall propose the management of the company to estimate the bad debt expense more appropriately, so that a larger sum can be credited to this account, which can provide for writing of non receivable accounts and also maintains a credit balance in Allowance for Uncollectible Accounts.