What are the methods used to estimated bad debt under the allowance method?
The allowance method is the option that is allowed under U.S. GAAP. U.S GAAP leaves it up to the company to determine how they want to implement the allowance method.
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What is the journal entry to record bad debt expense?
Under the allowance method, the company would establish an allowance for doubtful account reserve, which is a contra-asset. When the company believes there is a risk that they won’t collect $100 from a customer who is going through bankruptcy, then they would debit bad debt expense and credit allowance for doubtful accounts. When the company […]
What method is allowed under U.S. GAAP to estimate uncollectible accounts receivable?
Under U.S. GAAP, only the allowance method is an allowable method to estimate uncollectible accounts receivable. The allowance method recognizes bad debt expense when the company believes there is a high likelihood the receivable will not be collected, which follows the matching principle. The direct write-off method violates the matching principle.