Establishing an allowance for doubtful accounts under the allowance method is necessary because?

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tweedle6529 tweedle6529

22-08-2022
Business

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Establishing an allowance for doubtful accounts under the allowance method is necessary because?

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anjithaka anjithaka · Answer 1 · 2022-09-02T11:57:09+02:00

Establishing an Allowance for Doubtful Accounts under the allowance method is necessary because: Uncollectible accounts that are written off must be accumulated in a separate account.

What is the allowance method?

The allowance technique is setting aside a reserve for anticipated future bad debts. The reserve is calculated as a percentage of the sales made during a reporting period, with the percentage of sales possibly being adjusted for client risk.

The allowance approach helps businesses estimate the debt risk at the time of the original purchase and allows them to recoup the otherwise unrecoverable debt or receivable.

Companies that adhere to widely recognized accounting rules must use the allowance technique. The technique is used to calculate and accrue to the general ledger the financial risk of customer accounts that will probably not be paid in the future and cause a loss to the company.

To learn more about the allowance method refer to:

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