Question
What would you reply to the below statement? There are two basic methods for estimating uncollectible accounts. However, it is not appropriate or acceptable to
What would you reply to the below statement?
There are two basic methods for estimating uncollectible accounts. However, it is not appropriate or acceptable to use both of the methods- GAAP only allows one method to be used at a time. Once an organization determines which it is going to use it also has to be consistent. As Wild and Shaw (2019) posit, the % of sales method also known as the income statement approach ignores the current balance. The current balance for Bad Debts Expense is zero (the expense account is closed in prior period). The method assumes a % of credit sales is uncollectible. The % of receivable basis also known as the balance sheet approach focuses on accounts receivables. Wild and Shaw claim that the method assumes a % of a companys receivables is uncollectible. The % of sales method is regarded as the simpler method while the % of accounts receivables method is known to be more accurate.
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