In other words, it tracks reductions against a paired account, helping you break out gross and net amounts in your financial records. Imagine running a company and anticipating that you will collect all your receivables, only to discover later that…

To compensate for this problem, accountants have developed “allowance methods” to account for uncollectible accounts. Importantly, an allowance method must be used except in those cases where bad debts are not material (and for tax purposes where tax rules often…