1. Explain how a company estimates bad debts using (a) the sales or income statement approach, and (b) the accounts receivable or balance sheet approach. 2. Define the net realizable value of a company’s accounts receivable. How is the net realizable value of accounts receivable reported on the company’s balance sheet?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
1. Explain how a company estimates bad debts using (a) the sales or income statement approach, and (b) the accounts receivable or balance sheet approach.
2. Define the net realizable value of a company’s accounts receivable. How is the net realizable value of accounts receivable reported on the company’s balance sheet?
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