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Category: Tax
Satisfied Customers: 5884
Experience:  CPA with tax experience.
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If you have an AR balance as of the end of a Fiscal year and

Customer Question

If you have an AR balance as of the end of a Fiscal year and the money is not collectable despite being recorded on the balance sheet as account receivable.

Is this still considered an Account Receivable?
What is the definition of an Account Receiable as it relates to GAAP?
Submitted: 7 years ago.
Category: Tax
Expert:  JKCPA replied 7 years ago.



Thanks for your question.


No, it should not be considered an accounts receivable (A/R) if it has been determined the account is uncollectible. Once it is determined that the amount is uncollectible, steps must be taken to write the debt off as a bad debt. There are 2 methods of doing this: 1) Direct write-off method: Once the debt is determined to be uncollectible, the loss is recorded by debiting Bad Debt Expense and crediting A/R. or 2) Allowance Method: An estimate is made on the expected uncollectible accounts based on total sales made on credit/account or from total outstanding receivables. The estimate is entered as an expense and an indirect reduction in A/R through an allowance for doubtful accounts.


A/R is defined as claims held against customers and others for money, goods or services that are expected to be collected.


Hope this helps,

Best regards,