What is the difference between using the percentage of sales and percentage of receivables method for calculating doubtful accounts? Is it appropriate to use a hybrid of the percentage of sales and the percentage of receivables methods of calculating? Do generally accepted accounting principles allow for using both methods at the same time? Why?
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Percentage of sales computes the allowance for doubtful accounts by multiplying credit sales for the period by a certain percentage and debiting this amount to doubtful accounts expenses and crediting allowance for doubtful accounts. On the other hand, percentage of receivables is a more complex method. An analysis of the compositions of the company's total receivables is needed. These receivables are then classified into current and past due with the past due further classified into 30 days overdue, 60 days overdue, and 90 days overdue ...
The percentages of sales versus the percentages of receivables are provided.