I am confused about one thing. Don't we overstate the allowance of Doubtful account at the time of receiving cash from write off? During the time of reinstate, first we reverse the entry by debiting A/R and crediting(increasing) allowances for doubtful account. But when we collect the cash from write off we credit or decrease the A/R as the receivable are collected but allowance of Doubtful account remain same at their credit balance. So why don't we eliminate the allowance of Doubtful at the time of collecting cash? This question arise because the allowances was estimated from the doubtful account which were collected and no longer as collectable.
Remember that the AFDA is only an estimate based on the prior period's outstanding A/R. It is not connected to any one A/R customer. Therefore, when we reverse the write off (reinstatement) we are simply returning the estimate to it's balance before that portion of the write off. The provision is then available for other write offs that will happen in the future. Hope that makes sense.
I cant find the next video! is it called video 5? Ive searched and cant find it, is it the one that pops up at the end of the video? What is the next video called?
I am confused about one thing.
Don't we overstate the allowance of Doubtful account at the time of receiving cash from write off?
During the time of reinstate, first we reverse the entry by debiting A/R and crediting(increasing) allowances for doubtful account. But when we collect the cash from write off we credit or decrease the A/R as the receivable are collected but allowance of Doubtful account remain same at their credit balance. So why don't we eliminate the allowance of Doubtful at the time of collecting cash?
This question arise because the allowances was estimated from the doubtful account which were collected and no longer as collectable.
Remember that the AFDA is only an estimate based on the prior period's outstanding A/R. It is not connected to any one A/R customer. Therefore, when we reverse the write off (reinstatement) we are simply returning the estimate to it's balance before that portion of the write off. The provision is then available for other write offs that will happen in the future. Hope that makes sense.
I cant find the next video! is it called video 5? Ive searched and cant find it, is it the one that pops up at the end of the video? What is the next video called?
Sorry...I have not yet completed the next video. My apologies.