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kt7110
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Joined: 30 Jun 2010
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Posts: 5
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| Posted: 06 Jul 2010 at 16:06 | IP Logged
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I have a client who does not understand the difference between bad debt expense and uncollectibles. They do not understand why the two do not equal. I have been researching this and I'm trying to come up with a simple explanation that they will understand. Does anyone have any suggestions as to how to easily explain this to someone who does not understand accounting?
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jiejenn
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Joined: 18 Dec 2009
Location: United States
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Posts: 337
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| Posted: 08 Jul 2010 at 09:59 | IP Logged
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Uncollectible is against the payments from customers while bad debt expense is all the uncollectable payments from all sources. Uncollecable is under bad debt expense category.
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Zeratul
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Joined: 11 Jun 2009
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| Posted: 08 Jul 2010 at 12:46 | IP Logged
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Bad debt expense is an accrual account which attempts to match the bad debt to the period it is incurred, not when it is realized. Bad debt is considered to be a cost of doing business, since extending credit generally increases revenues, but the cost of extending credit is reflected in the risk that it may not be repaid.
Uncollectibles are past due account receivables which, either due to the passage of time or insolvency of the borrower, are unlikely to ever be collected.
You can think of bad debt expense as accrual accounting (estimating expenses) and uncollectibles as cash accounting (the actual write off).
I'll be expecting my check in the mail ;-).
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Topic: A/R Question
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