FSA: allowance for AR increase

dandman

what is allowance for AR, when it is reversed, will it increase Asset or Liability? How does it work? Thanks.

WarrenB1

sounds like bad debt provision

ryanlb

Allowance for AR: based on past experience, can be a % of AR, this will reduce AR and increase expense in IS

When reversed: reversed when the AR is actually paid, increase cash and increase other income (?).

CPK please help!

Pegasus2008

freakingout Wrote:
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> Somehow I disagree. You don't reduce AR when
> reserved because you didn't recognize that as AR
> in the 1st place. And I don't understand your 1st
> paragraph.

Sorry for confusing you.

In the balance sheet Accounts Receivable is always shown as net:

Gross Accounts Receivable - Provision for doubtful debts (PDD) = Net Accounts Receivable.

Now since we are going to reverse the provision, you will be reducing PDD which is going to increase Net A/R. But if you reduce PDD, it has to balance somewhere, and that is going to be equity (it increases) through the I/S (basically a gain).

Then we go to the next step that is decrease Net A/R (since Gross A/R will decrease) and increase cash.