Final answer:
Impairment is used in the context of receivables to indicate that a receivable may not be collected. It refers to the reduction in expected future cash flows from a receivable, typically caused by factors like financial difficulties or potential default by the debtor.
Step-by-step explanation:
In the context of receivables, the term impairment is used to indicate that a receivable may not be collected. Impairment refers to the reduction in the expected future cash flows from a receivable, which can be caused by various factors such as the financial difficulties of the debtor or the likelihood of default.
For example, if a customer has a history of late or missed payments, it signals a higher risk of non-payment in the future. In such cases, the receivable is considered impaired, and the business may need to make adjustments to its financial statements to reflect this potential loss.
Overall, impairment is an important concept in receivables accounting as it helps businesses assess the collectability of their outstanding receivables and make appropriate adjustments to their financial records.