Estimation of Doubtful Accounts

• Doubtful accounts


  Accounts that are unlikely to be collected
• Methods of estimating doubtful accounts expense

  • Aging of A/R (Statement of financial position approach)
  • Percent of A/R (Statement of financial position approach)
  • Percent of sales (Income statement approach)
• Past due


  Period beyond the maximum credit term
• If the allowance for doubtful accounts has a credit balance before adjustment


  Doubtful account expense is the required allowance less the allowance balance before adjustment
• Percent of Accounts receivable

  Required allowance balance = % x Accounts receivable, end
• The rate used is usually determined from past experiences of the entity
• Percent of sales


  1. Doubtful account expense = amount of sales for the year x % rate

  2. Rate is computed by dividing the bad debt expense losses in prior years by the charge sales of prior years