Doubtful accounts

Receivables not expected to be collected. The allowance for them is deducted from receivables and set by management estimate, so trimming it raises profit with no change in the customers.

Where you will meet it

Doubtful accounts appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Say when expenses are recognised and how matching works
  CFA Level I · Financial Statement Analysis

  “The judgements that matter are the allocation choices: depreciation lives and methods, the estimate of doubtful accounts, warranty provisions and inventory write-downs.”

• Spot red flags that point to poor-quality financial reporting
  CFA Level I · Financial Statement Analysis

  “A falling allowance for doubtful accounts against rising receivables, lengthening depreciation lives, capitalisation of costs peers expense, a large fourth-quarter adjustment, frequent changes of auditor or chief financial officer, and serial one-off charges all point the same way.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with D · Glossary