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Unformatted text preview: propriate if there is a fairly stable relationship between credit sales and bad debts.
Theoretically superior because of proper matching, but functionally inferior because due to potential for “spiraling” Allowance account and misleading NRV. Chapter
7-29 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable
Uncollectible Accounts Receivable Percentage-of-Sales Approach
Percentage-of-Sales Approach Illustration: Chad Shumway Corp. estimates from past experience that about 2 percent of credit sales become uncollectible. If Chad Shumway has credit sales of $400,000 in 2010, it records bad debt expense as follows ($400,000 x 2% = $8,000). Bad Debt Expense Allowance for Doubtful Accounts Chapter
8,000 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable
Uncollectible Accounts Receivable Percentage-of-A/R Approach
Percentage-of-A/R Approach Balance sheet approach (uses B/S accounts) NOT perfect matching, but much better matching
than direct write-off method...
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- Fall '12