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Establishing an Allowance for Doubtful Accounts Policy

Management should establish an allowance for doubtful accounts to reflect the amount of an agencys receivables that management estimates will be uncollectible. The establishment of an allowance account ensures that the agencys receivables are not overstated for financial reporting purposes.

The method of establishing an allowance for doubtful accounts is left to the agencys discretion. However, the estimated allowance should be based upon historical data or other pertinent information relative to the receivables in question. If an agency needs guidance in establishing an allowance for doubtful accounts, OSCs Statewide Accounts Receivable Management Unit should be contacted.