CPA Exam FAR Questions | Bad Debt Expense & Allowance for Doubtful Account. Intermediate Accounting
Channel: Farhat Lectures. The # 1 CPA & Accounting Courses
Date: 2020-08-01

In this video, I will discuss  CPA exam FAR questions.  CPA exam FAR is one of the four parts of the CPA questions.  CPA candidates need tp practice and understand  CPA exam FAR questions before sitting for the CPA exam.

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An allowance for doubtful accounts is considered a “contra asset,” because it reduces the amount of an asset, in this case the accounts receivable. The allowance, sometimes called a bad debt reserve, represents management’s estimate of the amount of accounts receivable that will not be paid by customers. If actual experience differs, then management adjusts its estimation methodology to bring the reserve more into alignment with actual results.

In accrual-basis accounting, recording the allowance for doubtful accounts at the same time as the sale improves the accuracy of financial reports. The projected bad debt expense is properly matched against the related sale, thereby providing a more accurate view of revenue and expenses for a specific period of time. In addition, this accounting process prevents the large swings in operating results when uncollectible accounts are written off directly as bad debt expenses.
Units should consider using an allowance for doubtful accounts when they are regularly providing goods or services “on credit” and have experience with the collectability of those accounts. The following entry should be done in accordance with your revenue and reporting cycles (recording the expense in the same reporting period as the revenue is earned), but at a minimum, annually.