In accounting, which is used most; balance sheet or income stmt. approach to estimate bad debts? Why?

Answer 1

I would say income statement because you can calculate the ratio of accounts receivable to to bad debts and/or revenue and use that to estimate bad debts in the future

Answer 2

What we are doing is recording bad debts. GAAP says to record them in the period of sale - since we don't know who is not going to pay we need to estimate the bad debts. There are two ways - a % of sales or a % of accounts receivable For the % of sales method - take sales x a % and that is your bad debt expense for the year. Your ending allowance is based on that estimate less any actual write-offs for the year For the other method take A/R x % and that is your ending balance in the allowance account. Look at the current balance and that is your adjustment

Answer 3

I would say it's the balance sheet, or to be more specific, the Accounts receivable ledger, which is a subsidiary ledger. To estimate bad debts you can't just look at the debtors in total. You look through your aged listing of AR, paying attention to those individual debtors 60 days and older, or any debtor who has exceeded his credit term. You then need to call the customer and then assess whether that debt is likely to be doubtful or bad.

Answer 4

Balance sheet becuase it shows your assets compared to your debts. An income statement tell you your net protift or loss...if you're making money or losing it, and how much.