You run an office supplies chain. You must determine the most appropriate bad debt estimation method to use for financial statement reporting. Your choices are the income statement, balance sheet, and balance sheet aging of receivables methods.
• Research a real competitor in your industry and determine which method the competitor selected. Give a detailed description of the method used and any supporting calculations.
• Create a hypothetical credit sale, an accounts receivable figure for your business, and compute the bad debt estimation using the competitor’s method.
• Create the journal entry to record bad debt.
• Compute bad debt using the other two methods and show the journal entry for each.
• What are the benefits and challenges for all of these methods?
• Which method would you choose for your business? Explain why.