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The document discusses different methods for estimating bad debt expenses in accounting. It describes three common methods - percentage of net credit sales, percentage of receivables, and aging of receivables. The teacher engages students through questions to ensure understanding of how each method is calculated and when bad debt expenses are recognized. Students demonstrate knowledge of the allowance method and direct write-off method for accounting for bad debts.

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Sophia Anne Monillas
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6 views

MB LP Draft

The document discusses different methods for estimating bad debt expenses in accounting. It describes three common methods - percentage of net credit sales, percentage of receivables, and aging of receivables. The teacher engages students through questions to ensure understanding of how each method is calculated and when bad debt expenses are recognized. Students demonstrate knowledge of the allowance method and direct write-off method for accounting for bad debts.

Uploaded by

Sophia Anne Monillas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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TEACHER’S ACTIVITY STUDENT’S RESPONSE

So, let us now tackle estimating bad debt


expenses. So Bad Debt Expense or Doubtful
Accounts is recognized when loss becomes
probable and can be measured reliably. So class,
are you familiar with the methods of estimating
doubtful accounts? MARY ANN:
RAISE HAND Yes ma’am. The different methods of estimating
doubtful accounts are percentage of net credit
sales, percentage of receivables, and aging of
receivables.

Correct!
Now let us discuss the different methods in Bad
Debt Expense. So the first one is the percentage
of net credit sales. So Percentage of net credit
sales is computed without regard to the
beginning balance of the allowance for doubtful
accounts and write-offs and recoveries recorded
during the year. So question, how are we going to SOPHIA:
determine the percentage to be applied? Ma’am the percentage applied is determined
RAISE HAND based on the entity’s past experience and careful
analysis of the historical relationship between
credit sales and bad debts.
That’s right!
It is determined based on the entity’s past
experience and careful analysis of the historical
relationship between credit sales and bad debts.

Okay moving forward to the second method,


which is the percentage of receivables. It is
computed by applying a percentage on the
ending balance of the receivables.
So class, do we recognize bad debts directly on JULIE:
the sales revenue recognized in the period? No ma’am it is recognized based on the ending
RAISE HAND balance of receivables and not directly on the
sales revenue recognized in the period.

Okay, good.
So let’s move on to the last method, which is the
aging of receivables.

The required balance of allowance for doubtful


accounts is computed by applying various
estimated percentages to the breakdown of the
ending receivable according to ages. And it is
determined based either on the number of days
the receivables are outstanding or the number of
days the receivables are past due meaning the
payments that have not been made by the cutoff
time on the due dates.

Okay class.
Please do take note and keep in mind the
differences of the methods especially when you
are applying it in some problems. Are we guys
clear? CARLA:
Yes ma’am.

Okay so let’s move on to our next topic which is


the Accounting for Bad Debts.
So what are these methods? Can you say one
method and give your idea about it. ATHENEA
RAISE HAND Ma’am one method that I can remember based
on my readings is the Allowance Method. An
allowance is recognized for bad debts expense
when the collectability of accounts becomes
doubtful or questionable.

CARLA:
Ma’am the other method is the Direct write-off
method. This means that bad debt expense is
directly written-off, meaning it is directly reduced
from the balance of accounts receivable.
Very good to MS. CORBITO AND MS. TURALBA

So what does write-off mean, anyone form the


class? Why do we recognize this?
RAISE HAND PAULYN:
Ma’am write-off means that the entity shall
directly reduce the gross carrying amount of a
financial asset for example a receivable when the
entity has no reasonable expectations of
recovering a financial asset in its entirety or a
Correct, when it becomes certain that the portion thereof.
accounts are uncollectible or “worthless” the
accounts are written off.

In addition to direct write-off method. There is no


entry made for accounts that are merely doubtful
of collection. It does not conform to the concepts
of accrual basis of accounting, matching, and
conservatism because bad debts expenses are
recognized only when uncollectability becomes
certain and do not when loss becomes probable.

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