Estimating bad debts is crucial for businesses to accurately reflect their financial position. There are three primary methods used: the percentage of sales method, the percentage of receivables method, and the aging of accounts receivable method. The percentage of sales method is straightforward, calculating bad debt as a fixed percentage of credit sales. While simple, it may not accurately reflect changing sales patterns. The percentage of receivables method improves accuracy by considering outstanding receivables but requires regular updates to the estimated percentage. The aging of accounts receivable method provides the most detailed and accurate estimate by categorizing receivables by age and applying specific uncollectible percentages. However, this method is more time-consuming and demands meticulous record-keeping. Ultimately, the best method for a business depends on its specific needs and circumstances, balancing simplicity with the need for accuracy in representing potential uncollectible accounts