You have started a business that has now been going for a couple of years. Due to the increased volume in sales, you have started noticing more bad debt and want to use the allowance method for estimating bad debt. Would you use the percentage of sales method or the percentage of accounts receivable method and why?© BrainMass Inc. brainmass.com October 10, 2019, 5:57 am ad1c9bdddf
Hi there, I hope that this helps you.
Allowance for Bad Debt:
When a credit sale is uncollectable, it will be considered a bad debt. It will be accounted by a (credit) reduction in Accounts Receivable and an (debit) increase in Allowance for Bad Debt. This write-off will affect the balance sheet. This will not affect the Income Statement at this time because it was identified earlier through Allowance for Bad Debt.
Percent of "Sales" Method:
Bad debt would be a percentage ...
This solution gives instructions on how to handle bad debt allowance. Included are the definitions of Allowance for Bad Debt, the Percent of "Sales" Method, and the Percent of "Accounts Receivable" Method.