Question

In view of the difficulty in estimating future events, would you recommend that accountants wait until collections are made from customers before recording sales revenue? Should they wait until known accounts prove to be uncollectible before charging an expense account? Explain and provide examples.

Answer 1

According to the Accrual basis of accounting, the events must be recorded on the date when they occurs. On following this principle we can say that, sales which are done on credit basis must be recorded immediately in the books of accounts instead of waiting for the collections. Eg- goods sold to Mr.A on credit must be recorded immediately without waiting for the collection as the date of actual receipt is not known to the company. If there is any sort of uncollectible account then it must be charged as bad debts. Also to avoid these uncollectible chances, a co. must formulate policies to avoid the failures. Eg- discount schemes on immediate payment.