eceivables arise due to a deferred sale, and companies are often unable to collect all their debts, which means that part of those debts may become non-existent or there is doubt about the possibility of collection. 1- What is the difference between bad debts and doubtful debts?
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.
eceivables arise due to a deferred sale, and companies are often unable to collect all their debts, which means that part of those debts may become non-existent or there is doubt about the possibility of collection.
1- What is the difference between
2- Draft an example (supported by numbers) to explain the method of doubtful debts in dealing with bad debts, provided that the explanation includes accounting restrictions and the impact on the financial statements?
3- Explain why the use of the direct method (bad debt method) conflicts with generally accepted accounting principles?
4- One of the methods for estimating doubtful debts is the deferred sales method, the receivables balance method, and the receivables aging method. Required: Formulate an example (enhanced by numbers) to explain the method of aging receivables in estimating doubtful debts, taking into account the following: (1) the number of clients should be 10 clients, (2) the percentages of the provision for doubtful debts should range between 1% -- 30%.
*** Note: The attached table can be use
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