Accounts Receivable Income Statement Approach

Intermediate accounting 8th edition edit edition problem 9be from chapter 7.

Accounts receivable income statement approach. Using the income statement approach what number do you calculate. Percentage of sales approach income statement approach states that the amount of bad debt expense to be recognized by a company is calculated as a percentage of credit sales generated during the current accounting period. Income statement approachthe following information relates to a company s accounts. The determination of the needed or desired balance in the allowance account.

Compute bad debt estimation using the balance sheet method of percentage of receivables where the percentage uncollectible is 9. The income statement approach is an approach by which management can estimate an allowance for uncollectible receivables as a percentage of the period s sales. There are two primary methods for estimating bad debt expense. The income statement method estimates bad debt.

Answer to uncollectible accounts. The first is an income statement approach that measures bad debt as a percentage of sales. The second is a balance sheet approach that measures uncollectibles as a percentage of ending accounts receivable. Compute bad debt estimation using the income statement method where the percentage uncollectible is 5.

An allowance as a percentage of sales is an effective approach when the company has past experience or history to use as a guide. Prepare the journal entry for the income statement method of bad debt estimation. Net accounts receivable 281 000 it s important to notice that the income statement approach focuses on the current year s credit sales the effect on the balance sheet the allowance for uncollectible accounts and hence net accounts receivable is an incidental result of estimating the expense.