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What are different ways to estimate bad debt?

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What are the different ways to estimate bad debt? How does this affect net income? What does Generally Accepted Accounting Principles (GAAP) require? Why? Should all companies have bad debt? Explain your answer.

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Solution Summary

The two methods are described and the impact on earnings is described. The two methods are contrasted for you. Both are acceptable for GAAP.

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What are the different ways to estimate bad debt?

You can use a percent of sales (percentage of sales method) or use a percent of the receivables at year end (allowance account method). One emphasizes matching the expense to sales ...

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