ACC 281 Week 2 DQ2 - 7417

Solution Posted by
3number
Solution Detail
Price: $2.00
  • From: ,
  • Posted on: Wed 11 Apr, 2012
  • Request id: None
  • Purchased: 0 time(s)
  • Average Rating: No rating
Request Description

Week 2 DQ2

Why would you use the percentage of sales method for calculating doubtful accounts as opposed to the percentage of receivables method? Is it appropriate to use a hybrid of the percentage of sales and the percentage of receivables methods of calculating the allowance for doubtful accounts? Explain why. Does GAAP allow for the use of both methods at the same time? Explain why.

Why would you use the percentage of sales method for calculating doubtful accounts as opposed to the percentage of receivables method?

The percentage of sales method for calculating doubtful accounts seems to be more reliable opposed to the percentage of receivables method.  The percentage of sales method is a percentage calculated based on past experiences of bad debt that is then applied to the current period, as an estimate.  The percentage of receivables method seems less reliable due to its specific target of receivable accounts based on their individual history.  While historical information can seem reliable, companies can shift positions quickly and turn from doubtful accounts to reliable accounts, thus creating an issue in the percentage for doubtful accounts while the earlier method simply applies a percentage to the whole.

 Is it appropriate to use a hybrid of the percentage of sales and the percentage of receivables methods of calculating the allowance for doubtful accounts? Explain why.

The two methods can be used to calculate the allowance for doubtful as well as bad debt expense.  When compared, the results that result in greater expense can be used.

Does GAAP allow for the use of both methods at the same time? Explain why.

The GAAP supports the use of the allowance method for estimating bad debts due to it’s matching the expense to the current period. 

 

 

Solution Description

Week 2 DQ2

Why would you use the percentage of sales method for calculating doubtful accounts as opposed to the percentage of receivables method? Is it appropriate to use a hybrid of the percentage of sales and the percentage of receivables methods of calculating the allowance for doubtful ac