$304,000 is the amount of its net accounts receivable. Since there is already a provision of $16,000 for bad debts so $1600 bad debt would not be reduced from the net balance of accounts receivables.
A bad debt is a receivable that a customer has refused to pay. When credit is extended to customers, bad debts are possible. They occur when a company extends too much credit to a customer who is unable to repay the debt, resulting in a late, reduced, or missed payment. A bad debt can also occur when a customer misrepresents themselves in order to obtain a credit sale and has no intention of ever paying the seller. The first situation is caused by inefficient internal processes or changes in a customer's ability to pay. The second scenario is caused by a customer who intentionally commits fraud.
When a customer's repayment of previously granted credit is thought to be uncollectible and is therefore recorded as a charge off, a bad debt is an expense incurred by the business. Bad debt is a risk that all businesses that extend credit to customers must account for, as there is always the possibility that payment will not be collected.
The balance of money owed to a business for goods or services delivered or utilized but not yet paid for by clients is known as accounts receivable (AR). On the balance sheet, accounts receivable are shown as a current asset. Any sum of money owing by clients for purchases made on credit is known as accounts receivable.
The term "accounts receivable" describes the unpaid bills or cash that customers owe a business. The word refers to accounts that a company is entitled to after delivering a good or service. Receivables, also known as accounts receivable, are a company's line of credit that often has terms that call for payments to be made within a reasonably short period of time. A few days to a fiscal or calendar year are usually included.
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