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Accounting Discussion Corporations are required to use the allowance method when accounting for bad debts. This...

Accounting Discussion

Corporations are required to use the allowance method when accounting for bad debts. This necessitates the following entry at the start of the fiscal year:

Uncollectible accounts expense

   Allowance for uncollectible accounts

Explain the benefits gained from this entry in terms of Balance Sheet and Income Statement presentation for the corporation and its investors.

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Answer #1

Benefits to corporation wrt Balance Sheet and Income Statement presentation:-

1. It facilitates the matching principle of accounting because expenses related to revenue is reflected in the year of revenue itself.

2. Fair valuation of account receivables on the balance sheet.

Benefits to investors:-

1. Financial statements will reflect true and fair view.

2. Investors will be able to value the organization better.

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