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Establishing an Allowance for Doubtful Accounts

Policy Area: Statewide Accounts Receivable Program

Effective Date: July 1, 1995

Authority: 147-86.21 provides that the State Controller adopts statewide policies and procedures and that state agencies shall establish internal policies and procedures for the management and collection of accounts receivable consistent with statewide policies and procedures.

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

The method of establishing an allowance for doubtful accounts is left to the agency’s 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, OSC’s Statewide Accounts Receivable Management Unit should be contacted.