accounting
Classmates,
According to (Oster, 2014), "Percentage of receivables and percentage of sales are two accounting allowance methods used to reconcile customer accounts deemed noncollectable. When allowed by generally accepted accounting principles (GAAP), these two strategies are preferred over direct write-off of bad debt expenses. Percentage of receivables and percentage of sales provide a business with the ability to accurately estimate the expected bad debt losses they will have in each succeeding fiscal reporting period." Percentage of sales method is a good way to see an estimate for bad allowance under the Henerally Accepted Accounting Principles (GAAP).For GAAP it does not allow a direct write off method. Percentage of receivables is accounted for on the balance sheet that is annually done. There are doubtful accounts that have to be accounted for in the journal.
Using both of these methods at the same time is not a good thing because they are both accounted for in different sections of accounting, receivable is acocunted in the balance sheet while percentage of sales is accounted for in the annual income statement. "Using percentage of sales and percentage of receivables to account for bad debt expenses is not allowed for calculation of income tax by the IRS. Direct write-off of noncollectable debts is the method required by the IRS when calculating income for tax purposes. Direct write-off requires the actual amount of bad debts to be subtracted from accounts receivable when the determination is made that a debt is noncollectable. Direct write-off does not allow an estimation of bad debts for the annual reporting period"(Oster, 2014)
References:
Oster, K. (2014). Percentage of receivables vs. percentage of sales. Retrieved from http://smallbusiness.chron.com/percentage-receivables-vs-percentage-sales-15788.html
According to (Oster, 2014), "Percentage of receivables and percentage of sales are two accounting allowance methods used to reconcile customer accounts deemed noncollectable. When allowed by generally accepted accounting principles (GAAP), these two strategies are preferred over direct write-off of bad debt expenses. Percentage of receivables and percentage of sales provide a business with the ability to accurately estimate the expected bad debt losses they will have in each succeeding fiscal reporting period." Percentage of sales method is a good way to see an estimate for bad allowance under the Henerally Accepted Accounting Principles (GAAP).For GAAP it does not allow a direct write off method. Percentage of receivables is accounted for on the balance sheet that is annually done. There are doubtful accounts that have to be accounted for in the journal.
Using both of these methods at the same time is not a good thing because they are both accounted for in different sections of accounting, receivable is acocunted in the balance sheet while percentage of sales is accounted for in the annual income statement. "Using percentage of sales and percentage of receivables to account for bad debt expenses is not allowed for calculation of income tax by the IRS. Direct write-off of noncollectable debts is the method required by the IRS when calculating income for tax purposes. Direct write-off requires the actual amount of bad debts to be subtracted from accounts receivable when the determination is made that a debt is noncollectable. Direct write-off does not allow an estimation of bad debts for the annual reporting period"(Oster, 2014)
References:
Oster, K. (2014). Percentage of receivables vs. percentage of sales. Retrieved from http://smallbusiness.chron.com/percentage-receivables-vs-percentage-sales-15788.html
References: Oster, K. (2014). Percentage of receivables vs. percentage of sales. Retrieved from http://smallbusiness.chron.com/percentage-receivables-vs-percentage-sales-15788.html