Skip to ContentGo to accessibility pageKeyboard shortcuts menu
OpenStax Logo

A photograph shows skateboarders on a skateboarding ramp.
Figure 9.1 Skateboards Unlimited. Business success is realized with effective receivable management. (credit: modification of “2013 Street Arts Festival” by Eli Christman/Flickr, CC BY 2.0)

Marie owns Skateboards Unlimited, a skateboard lifestyle shop offering a variety of skate-specific clothing, equipment, and accessories. Marie prides herself on her ability to accommodate customer needs. One way she accomplishes this goal is by extending to the customer a line of credit, which would create an account receivable for Skateboards Unlimited. Even though she has yet to collect cash from her credit customers, she recognizes the revenue as earned when the sale occurs. This is important, as it allows her to match her sales correctly with sales-associated expenses in the proper period, based on the matching principle and revenue recognition guidelines.

By offering credit terms, Skateboards Unlimited operates in good faith that customers will pay their accounts in full. Sometimes this does not occur, and the bad debt from the receivable has to be written off. Marie typically estimates this write-off amount, to show potential investors and lenders a consistent financial position. When writing off bad debt, Marie is guided by specific accounting principles that dictate the estimation and bad debt processes. Skateboards Unlimited will need to carefully manage its receivables and bad debt to reach budget projections and grow the business. This chapter explains and demonstrates demonstrate the two major methods of estimating and recording bad debt expenses that Skateboards Unlimited can apply under generally accepted accounting principles (GAAP).

Order a print copy

As an Amazon Associate we earn from qualifying purchases.

Citation/Attribution

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters
Citation information

© Dec 13, 2023 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.