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Methods for Measuring the Impairment of Accounts Receivable

Author

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  • Bunea-Bontaº Cristina Aurora

    (Constantin Brâncoveanu University of Piteºti, Faculty of Management Marketing of Economic Affairs Brãila)

Abstract

Accounts receivable consists of amounts from customers. Companies are required to make ongoing estimates related to the collectability of accounts receivables and to maintain an allowance for estimated losses due to customers’ inability to make the payments. Changes in economic conditions, in collection efforts or in trade credit policies may cause differences in estimates of uncollectible accounts. The article reviews the methods for measuring the impairment of accounts receivable: percentage of sales, percentage of receivables, aging schedule, and roll-rate matrix. Under these methods future expectations for bad debts are determined, based on historical level of credit losses and on judgements about the creditworthiness of the customers.

Suggested Citation

  • Bunea-Bontaº Cristina Aurora, 2013. "Methods for Measuring the Impairment of Accounts Receivable," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 1119-1124, May.
    • Handle: RePEc:ovi:oviste:v:xii:y:2012:i:1:p:1119-1124
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    More about this item

    Keywords

    accounts receivable; impairment; uncollectible accounts; bad debt expense; expected loss;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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