Trade Receivables

Question 1

How do you calculate bad debt expense when using the income statement approach vs the balance sheet approach?

Answer 1

Under the income statement approach, bad debt expense is simply the total amount computed, which is the net sales times the percentage.When bad debt is estimated emphasizing the balance sheet, the expense is the amount needed to adjust the allowance account to the amount computed. Thus, bad debt under this method is the amount computed less any credit balance currently in the allowance account (or plus any debit balance).