Business Glossary

provision for possible uncollectibility associated with accounts receivable. In the balance sheet, accounts receivable, representing gross receivables, is reduced by the allowance account to obtain net receivables-the amount expected to be collected (realizable value). For example, if gross receivables are $100,000 and the allowance account balance is $5000, the current asset section of the balance sheet shows:

The two ways of accounting for uncollectible accounts are the allowance method and the direct write-off method .