The Allowance Method of Accounting for Bad Debts Requires an Estimate

question 130

Essay

The allowance method of accounting for bad debts requires an estimate of bad debt expense at the end of each accounting period. The two common methods to determine the estimate amount are the percent of sales method and the percent of receivables method. Explain the basic differences between the two methods.

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Definitions:

Personal Sources

Individuals or personal contacts from whom one can obtain information, advice, or support, especially relevant in decision-making processes.

Evaluative Criteria

The standards or benchmarks that consumers use to compare and judge products or services during the decision-making process.

Objective Attributes

Features or characteristics of a product or service that can be quantitatively measured.

Subjective Attributes

Characteristics of an object, service, or product assessed based on opinions, feelings, and experiences rather than objective measures.