At Ask Me Help Desk you can ask questions in any topic and have them
answered for free by our experts. To ask questions or participate in
answering them you must register for a free account. By registering you
will be able to:
Get free answers from experts in any of our 300+
topics.
An allowance is necessary because in most cases not all receivables are collectable due to bankruptcies, pricing disputes, lack of performance, law suits etc. I ask you Masud, If I owed you $100.00 as of 12/31/20xx and I filed for bankruptcy before year end, would you really expect to receive the $100.00 from me. By the time I was finished paying the secure creditors and everyone else in line, you would be very lucky to receive anything at all. Now that's just $100.00, put that into context when your talking about K-mart or some of the larger automotive suppliers, you could be talking big bucks. The main point is if you don't make an allowance and you have a good idea your not going to collect on some receivables then your overstating your assets and your income as of your reporting period. Hope this helps.
Linear Mode
