Question

compare and contrast are ageing receivable and the net credit sales of making allowance for doubtful debts.

Answer 1

1) Ageing Receivable

Method: It uses the account receivable balance to determine the doubtful debts. Accounts receivable are classified on the basis of Ageing of dues i.e., receivable dues for 1-30 days, 31-60 days, 61-90 days, etc and on the basis of this classification, they identify uncollectible debts.

Goal: The main goal of Ageing receivable is to present a correct accounts receivable balance as on date.

2) Net Credit sales

Method: It uses the net credit sales as a basis for calculating the doubtful amount. For example, from past records, a company observes that around 5% of credit sales are uncollectable, so it makes an allowance of 5% of credit sales

Goal: Its main goal is to match the correct Bad debt expense with sales