Refer to exercise E4-24,
Requirements
1. Determining bad debt expense by using the allowance method is management's estimate of uncollectible accounts and not an accurate measurement. Why not wait until a company finds out which customers can't pay and write the accounts receivable off as they occur?
2. If the allowance method is not used to estimate uncollectible accounts, what effect would this have on accounts receivable (balance sheet) and bad debt expense (income statement)?
Information from exercise E4-24
On June 30, 2017, Perfect Party Planners (PPP) had a $40,000 balance in Accounts Receivable and a $3,000 credit balance in Allowance for Uncollectible Accounts. During July, PPP made credit sales of $75,000. July collections on account were $60,000, write-offs of uncollectible receivables totalled $2,200, and an account of $1,000 was recovered. Bad debt expense is estimated to be $1,500.