Percentage of Net Sales and Accounts Receivable Aging Method. Requirements:
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
- There are two approaches to implementing the allowance method of recognizing
bad debt – Percentage of Net Sales and Accounts Receivable Aging Method.
Requirements:
- What accounting principle requires the use of the allowance method for recognizing bad debt?
- Compare and contrast the two methods identified above. Discuss the philosophical differences between them and identify the one that is more accurate and why.
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