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Trouble of setting up a separate allowance

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Reference no: EM131252013

When financial statements are prepared, an expense must be recognized and the receivable balance reduced to net realizable value. However, in the above adjusting entry, why was the accountsreceivable account not directly decreased by $7,000 to the anticipated balance of $93,000? This approach is simpler as well as easier to understand. Why was the $7,000 added to an allowance account? In reporting receivables, why go to the trouble of setting up a separate allowance?

Reference no: EM131252013

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