Explanation of Accounts Receivable - Net with Example

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When enterprise sells the goods to customer, then he open his customer’s account and add the amount of credit sale in it and its balance shows total value of account receivables and but due to not receiving all amount of account receivable, it is the duty of businessman to make reserve for not receiving the amount in the form of bad debts, discount or allowance, In many countries like USA and UK , they include allowance’s provision in provision for bad and doubtful debts . So when enterprise also keep the provision of discount to customer and some other provisions like allowance and doubtful debts, and after deducting these provisions, enterprise will enable to find the amount of account receivable net. We can explain it with following way.

Suppose , If A company sells S credit and at the end closing balance shows $ 50000 and co. makes the provision of doubtful debts 10% , provision of discount on debtors 5% and provision of allowance is 2% , at that time calculation can be done after calculation the value of these provisions and passing the journal entries .



This amount is payable by company’s customer and will show ass current asset in balance sheet of company.