The company determine amount of collections from customers after deducting the amount of uncollectible.
Work Step by Step
Companies determine the amount of uncollectible through following methods: 1. Direct write-off method: The company records amount of uncollectible from receivable of a particular customer. And deduct it as bad debt expenses from receivable to find amount of collections from customers. 2. Allowance method: In use of this method company's estimate amount of uncollectible at the end of each accounting period. This method ensures net realizable value of receivable to be reported in the balance sheet.