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When a specific customer account is deemed uncollectible—perhaps after multiple failed collection attempts, legal action, or bankruptcy—the company removes that balance from both AR and the allowance. Creating this allowance doesn't require knowing exactly which customers will default. Instead, companies use historical patterns, customer data, and economic trends to make estimates. Again, this “income statement method” is the easiest to apply, but not the most accurate. Proactive Measures for Late Invoice Management Understanding how businesses account for potential failures to pay...
