[masud]

I don't know have clear view about Allowances for Receivables and why business's need to make it?

Thanks

[Smith21000]

An allowance is necessary because in most cases not all receivables are collectible 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.

[masud]

I appreciate your answer, thanks a lot.