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标题: FSA: allowance for AR [打印本页]

作者: dandman 时间: 2011-7-13 16:32 标题: FSA: allowance for AR

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

作者: WarrenB1 时间: 2011-7-13 16:32

sounds like bad debt provision

作者: ryanlb 时间: 2011-7-13 16:32

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!

作者: Pegasus2008 时间: 2011-7-13 16:32

freakingout Wrote:
-------------------------------------------------------
> 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.

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