Are estimates allowed in bookkeeping?

While bookkeeping involves mostly precise amounts from sales and purchase invoices, cash receipts and checks written, etc. there are situations when estimates need to be entered. This is especially true when monthly financial statements are prepared under the accrual method of accounting. For instance, the monthly bookkeeping entries for depreciation, property taxes, utilities, fringe benefits and more will need to be estimates.

Even the end-of-year financial statements will require some estimated amounts. For example, a company's liability for warranties on its products and its allowance for uncollectible accounts receivable will need to be estimates. Providing an estimated amount is better than ignoring reality and reporting a zero amount.

I recommend that the company's accountant review the estimated amounts that will be entered in the bookkeeping or accounting system.

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