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Finance: What are Aging Receivables/an Allowance for Doubtful Accounts? 70 Views


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Description:

What are Aging Receivables/an Allowance for Doubtful Accounts? The allowance for doubtful accounts subtracts those receivables that are not going to be paid. It is referred to as doubtful because it is assumed, therefore an estimate, to an extent. An aging receivables report is used to list these receivables that won’t be paid specifically and give details.

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Transcript

00:00

Finance a la shmoop what are aging receivables and an allowance for doubtful accounts

00:10

A lot of people don't realize this but that was the original title of Moby [Book title changes to Moby Dick]

00:13

Dick yeah all right My aching receivables that's your

00:18

balance sheet talking well wine is about the only thing that gets better with age [Wine poured into a glass]

00:22

and even it has its limits there yeah aliens go ahead and pour yourself a

00:26

glass all right when receivables a balance sheet item

00:30

that lives right here get old they - generally speaking get bad note how much

00:36

higher the probability of non collection called deadbeat-ism gets as the age of

00:42

the receivables increases well generally speaking bills that are gonna get paid

00:46

generally get paid fast or at least on time and those that don't have to be

00:52

tracked well best guesses matter in accounting so coming to an actual

00:56

predicted rational and reasonable number is a big deal and you can see that in [Man discussing receivables]

01:01

this case the spread between the legally owed money and the amount likely to be

01:07

collected is a pretty big spread well the decline hits the assets side of the

01:12

balance sheet in the form of accounts receivable here being lower and [Accounts receivable column highlighted]

01:16

eventually when a bad debt is finally recognized as a deadbeat bad debt never

01:22

to be collected and is dead dead dead well then it simply gets written off on

01:27

the income statement or well said another way it goes away as a sale that

01:31

never happened so that's aging receivables in a nutshell and yeah this [Aging receives inside a nut]

01:36

is the one time you don't need to respect the elderly [Man trips over elderly man and gives thumbs up]

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