Page 65 - Demo

Ch(3) : Accounting for Receivable62RECORDING ESTIMATED UNCOLLECTIBLES:Two basis are used to determine this amount:A)Percentage of sales.B)Percentage of receivable.Both bases are generally accepted. The choice is a management decision. It dependson the relative emphasis that management wishes to give to expenses and revenues on the one hand or to cash realizable value of the accounts receivable on the other. The choice is whether to emphasize income statement or balance sheet relationships.The percentage-of-sales basis results in a better matching of expenses with revenues-an income statement viewpoint. The percentage-of-receivables basis produces the better estimate of cash realizable value-a balance sheet viewpoint. Under both bases, the company must determine its past experience with bad debts losses.Regardless of the basis to use for estimating Bad Debts Expense, the journal enrty at the end of the period will be:Emphasis on Income Statement Emphasis on Balance Sheet Relationships RelationshipsCash Realizable ValueAccounts Allowance for Receivable Doubtful AccountsCash Realizable ValueSalesBad DebtsReceivableExpensesPercentage of SalesPercentage of Receivable