300.7 Accounting for Bad Debt

ESTIMATION METHOD: To ensure that the net realizable value of receivables is fairly presented in the Statement of Net Position, PSU uses the accounts receivable estimation method.  This method emphasizes the balance sheet and the asset/liability approach to measurement.  The method uses historical data to estimate the percentage of current year accounts receivable expected to become uncollectible and reports accounts receivable at estimated net realizable value. 

An estimate of uncollectible accounts receivable, based on the four year historical collection experience for each institution, is recognized as Bad Debt expense at the end of each year.  Using past experience, the percentage of outstanding receivables that will become uncollectible can be reasonably estimated.  The direct write-off method, in which a receivable is written off only when it is clear that it cannot be collected, is not allowed (except for immaterial non SIS receivables as stated below) since it overstates assets and also results in a mismatching of revenues and expenses.  Adjustments are based upon estimates and will never precisely predict ultimate results.