which method of estimating uncollectible receivables focuses on net credit sales? course hero

The percentage of net sales method aims to determine the amount of uncollectible accounts expense, while the aging method focuses on calculating the balance in the account Allowance for Uncollectible Accounts. These methods, therefore, show different balances in both the expense and contra-asset accounts.

Full Answer

How to estimate uncollectible accounts?

a way to estimate uncollectible accounts by analyzing individual accounts receivable according to the length of time they have been receivable

What is a contra account?

a contra-account, related to account receivable, that holds the estimated amount of uncollectible receivable

Do you need journal entries after a bank reconciliation?

after performing a bank reconciliation, journal entries are required for

Why should a method of estimating bad debts be followed consistently?

Once a method of estimating bad debts is chosen, it should be followed consistently. This will enhance the comparability of the financial statements.

How long is a current account receivable?

Categories such as current, 31—60 days, 61—90 days, and over 90 days are often used.

Why is the aging method often referred to as the balance sheet approach?

The aging method is often referred to as the balance sheet approach because the accountant attempts to measure, as accurately as possible, the net realizable value of Accounts Receivable, which is a balance sheet figure.

What is a credit entry in accounting?

A credit entry is made to Allowance for Uncollectible Accounts, thereby adjusting the previous balance to the new, desired balance. The debit part of the entry is made to the Uncollectible Accounts Expense account.

What is the aging method in accounting?

The method to estimate the desired balance in the allowance account is called the aging of accounts receivable.

What does aging of accounts receivable mean?

Finally, in some cases, the aging of the accounts receivable will indicate that a particular account has no possibility of collection. If this occurs, this account should be written off by debiting the Allowance account and crediting Accounts Receivable before figuring the desired ending balance in the Allowance account.

When adding debit balance to allowance account, should the debit balance be added to the credit balance?

In this situation, the debit balance should be added to the desired credit balance in the Allowance account to figure the correct amount of the entry.