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

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Accounting

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

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The allowance method records an estimate of bad debt expense in the same accounting period as the sale It often takes months for companies to identify specific uncollectible accounts The allowance method follows the matching principle which states revenues need to be matched with the expenses incurred in that same accounting period Generally companies will choose between two approaches under the allowance method 1Percentage of Sales Using historical data a company examines the relationship between sales and uncollectible    See Answer
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