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how does the estimation of uncollecible account at the end of a period (recognition of bad...

how does the estimation of uncollecible account at the end of a period (recognition of bad debt expense) affect the income statement/ Balance sheet by using the percentage sales method?

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Answer #1

Answer

Percentage of sales method estimates uncollectible account based on percentage of prior year's actual uncollectible accounts to prior year's credit sales. When cash sales are small, firms uses net sales for calulation.

Formula:

Bad debt expense = Net sales (credit or total) × % estimated as uncollectible .   

Effect on Income Statement

Bad debt expense calculated from the above formula will be shown as expense in income statement. This bad debt expense would be matched against reveue for the period.

Effect on Balance Sheet

The firm will report the net account receivable after deducting estimated uncollectible expense from account receivable.

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