Accounts Receivable and Uncollectable Accounts

Allowance Method

Estimating uncollectable accounts at the end of the period to match the bad debt expense with the revenue generated.

Allowance for Doubtful Accounts (AFDA)

A contra-asset account that reduces Accounts Receivable to its Net Realizable Value.

Net Realizable Value (NRV)

The amount the business expects to actually collect in cash, calculated as NRV = Accounts Receivable - AFDA.

Bad Debt Expense

The cost of selling on credit, recorded in the same period as the revenue.

Overall Percentage Method

A method that applies a flat rate to the total ending Accounts Receivable balance for estimating uncollectable accounts.

Aging of Accounts Receivable Method

A method of grouping invoices by overdue duration and applying higher uncollectable percentages to older categories.

Write-Off

When a specific customer is known to be unable to pay, their balance is removed from Accounts Receivable and set against AFDA.

Recovery

The process of reinstating a write-off when a customer pays after being written off, recording the cash payment.