Bad Debt Reserve

Finance a la shmoop what are aging receivables and an allowance for doubtful accounts

A lot of people don't realize this but that was the original title of Moby [Book title changes to Moby Dick]

Dick yeah all right My aching receivables that's your

balance sheet talking well wine is about the only thing that gets better with age [Wine poured into a glass]

and even it has its limits there yeah aliens go ahead and pour yourself a

glass all right when receivables a balance sheet item

that lives right here get old they - generally speaking get bad note how much

higher the probability of non collection called deadbeat-ism gets as the age of

the receivables increases well generally speaking bills that are gonna get paid

generally get paid fast or at least on time and those that don't have to be

tracked well best guesses matter in accounting so coming to an actual

predicted rational and reasonable number is a big deal and you can see that in [Man discussing receivables]

this case the spread between the legally owed money and the amount likely to be

collected is a pretty big spread well the decline hits the assets side of the

balance sheet in the form of accounts receivable here being lower and [Accounts receivable column highlighted]

eventually when a bad debt is finally recognized as a deadbeat bad debt never

to be collected and is dead dead dead well then it simply gets written off on

the income statement or well said another way it goes away as a sale that

never happened so that's aging receivables in a nutshell and yeah this [Aging receives inside a nut]

is the one time you don't need to respect the elderly [Man trips over elderly man and gives thumbs up]