Monday, August 29, 2022 10:03:55 AM
The accounts receivable balance that shows up in the asset section of a balance sheet is almost always an estimate of what accounts are actually collectable. It is an estimate because even if management can identify the precise amount its customers owe the business, usually it is less than certain that this is the actual balance that will ultimately be collected.
Sometimes the valuation of accounts receivable goes beyond simply making a good faith estimate of collectability. In some situations management may be tempted to commit outright fraud. Because no cash is collected when sales are made “on account”, a corrupt management can record fraudulent additional sales by simply creating fictitious customers such as Lowe's and unnamed imaginary partners in Dubai.
https://understand-accounting.net/courses/common-accounting-frauds/
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