Question

A company had balances of $125,000 (debit) in accounts receivable and $3,000 (credit) in the allowance for doubtful accounts. how much accounts receivable does this company reasonably expect to collect

Answer 1

This company expects to receive $122,000 through collecting open accounts receivable. The debit amount on the account is what is due to be paid, therefore an asset. The credit in the allowance for doubtful accounts is held to write off any bad debt, where the debtor either cannot pay or some agreement is made to write down the balance owed. A company would expect to receive the whole $125,000 A/R balance, but realistically the company must plan to take some write down on the A/R and hold that in the reserve.