Someone else - what kind of account is "allowance for doubtful accounts". 1. Tell us about...

Someone else - what kind of account is "allowance for doubtful accounts".

1. Tell us about aging of receivables. Why would we age them?

2. What method are we using when we estimate bad debts?

3. what are the two methods of estimating bad debts? Which is easier for you to remember and why?

4. If you were focusing on your income statement (matching expenses to revenues), which method of estimating would you use?

Expert Solution

1- aging of receivables is one of the method of valuation of un collectible accounts in allowance method

accounts receivables are harder to collect over time.aging schedule used to categorize A/R by the length of time the bad debt

have been outstanding.The older the debt are, the higher the estimated percentage of doubtful accounts

2- for estimating bad debt

a) balance sheet approach

percentage of outstanding accounts receivables
aging of A/R

b) income statement approach

percentage of sales
percentage of net credit sales

3- mainly two methods

a) direct write off method : here bad debt expenses recognize only when an account is deemed uncollectible. not appropriate under gap because bad debts are not matched against revenue in same period.

b) allowance method: estimate the uncollectible amount when sale is made. so it follow the matching principle by recognizing bad debt against sales

4- allowance method may prefer to choose because it estimating the bad debt when sale is made.so, it follow matching principle by recognizing bad debt against sales.

ekkarill92 answered 2 months ago

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