Contrast two different methods of estimating bad debts. Create simple examples.

Expert Solution

There are two methods: Bad debts based on % of sales, based on % of receivable

Bad debts based on % of sale	Bad debts based on % of receivable
Estimation for allowance is based on current period credit sale	Estimatio is based on the existing receivable from past credit sales
The determination of bad debts is the current period addition to the existing provision for bad debts	The determination of bad debts is the total bad debts provision required for the closing receivable. The difference between the existing provision and the closing provision is the current period P&L provision
Formula = sales * estimated %	Formula = Closing receivable * estimated provision %
The method is unrealistic and fails to estimate the difference in the estimate for the prior period receivables as against the original estimate.	The method is realistic and estimates the difference in the estimate for the prior period receivables as against the original estimate.
Any change in the estimate is only prospective and does not change our bad debts evaluation of prior period sale	Any change in the estimate is on the entire receivable and does change our bad debts evaluation of prior period sale
Multiple % estimation is not possible	Multiple % could be applied based on ageing of receivables to estimate bad debts accurately
Eg:	Eg
Sales= 100	Sales 100
Estimate =1%	receivable closing = 200
Then bad debts provision is 1	Estimate 1%
Opening bad debts provision = 1	Opening bad debts provision = 1
Closing bad debt provision = 2	Closing bad debt provision = 200*1%
Receivable closing = 2	Closing bad debt provision =2
Post bad debt provision adjustment receivable is 199	Post bad debt provision adjustment receivable is 200-2 = 198

ekkarill92 answered 1 year ago

Q. Estimating bad debts (4 marks) Contrast two different methods of estimating bad debts. Create simple...

Q. Estimating bad debts Contrast two different methods of estimating bad debts. Create simple examples.

please provide an example: 5. Bad Debts; a. Estimating allowance for bad debts under both the...

please provide an example: 5. Bad Debts; a. Estimating allowance for bad debts under both the percentage of sales and the percentage of assets method (aging of receivables) b. Determining the ending balance in both Accounts Receivable and Allowance for Doubtful Accounts when given beginning balance in the two accounts and activity for the year. c. Same as (b) but for Bad Debt Expense

Compare and contrast the two methods for estimating bad debt expense. Explain which method do you...

Compare and contrast the two methods for estimating bad debt expense. Explain which method do you think gives a better representation of current bad debts.

Describe the two methods of accounting for bad debts under the allowance method (not the direct...

Describe the two methods of accounting for bad debts under the allowance method (not the direct write off method used on tax returns). Include how we estimate the allowance needed under one of the methods and how we account for write offs and recoveries of write offs.

Estimating bad debts can be done by the percentage of sales method and the aging of...

Estimating bad debts can be done by the percentage of sales method and the aging of accounts receivable method. each method has its drawbacks and advantages. If the company, you were reviewing used the percentage of sales method and you noted that the allowance shown on the balance sheet was growing disproportionately to the accounts receivable give possible reasons for the disproportionate growth and suggest a means to adjust this situation if necessary. See example below. Year Accounts Receivable Allowance ...

Discuss the 2 different methods used to account for bad debts/uncollectible accounts by a company. Include...

Discuss the 2 different methods used to account for bad debts/uncollectible accounts by a company. Include both ways of calculating the entry needed using the allowance method. Show an example of the adjusting entry made under the allowance method, as well as write-offs under each method. Discuss which method is preferable under GAAP and why?

Problem 9-2A Estimating and reporting bad debts LO P2, P3

Problem 9-2A Estimating and reporting bad debts LO P2, P3 At December 31, 2017, Hawke Company reports the following results for its calendar year. Cash sales $ 2,129,230 Credit sales 3,122,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 945,966 debit Allowance for doubtful accounts 12,520 debit Problem 9-2A Part 1 Required:1. Prepare the adjusting entry for this company to recognize...

The sales method for estimating bad debts is calculated using ________. A) aging of accounts receivable...

The sales method for estimating bad debts is calculated using ________. A) aging of accounts receivable B) a percentage of credit sales C) a percentage of net accounts receivable D) the current balance in accounts receivable Team Shirts had a balance in its allowance for uncollectible accounts of $(200). Aging the accounts receivable showed that the allowance should be $(1,800). Bad debts expense should be ________. A) $1,400 B) $1,600 C) $1,800 D) $2,000 Learning Objective 4-4 Credit card sales...

Question 2 (20 marks) a) Discuss and describe two methods to account for bad debts. Provide...

Question 2 a) Discuss and describe two methods to account for bad debts. Provide an example of each method using journal. (7.5 Marks) b) Identify and describe 5(five) internal control concepts and applications in control of cash receipts. (7.5 Marks) c) Explain the difference between expenses paid in advance and accrued expenses. Provide an example of each to demonstrate your understanding.

Name two different methods for evaluating evidence. Compare and contrast these two methods

Question