why do risk classification, historical percentage of customers, and Pareto analysis be the relevant factors that...
why do risk classification, historical percentage of customers, and Pareto analysis be the relevant factors that should be considered when estimating yearly allowance for doubtful debts?
Homework Answers
This methodology used for calculating the doubtful debtors. Bad debt calculation is important because every year we have calculate it .we use the matching principal why because we treat it as a expense in the profit and loss account it is important to use methods to calculate the bad debt allowance.
Percentage sales method, debtors ageing etc methods used .
Risk classification based on risk we take the debtors in consideration and we proritize more
Historical percentage calculation is take certain percentage on sales
Pareto analysis is 80:20 is it depends on risk
Above methods depend on based on our company .
Thanking you
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An advantage of basing bad debt expense on the historical relationship between bad debts and net credit sales is that it provides the best information to the credit department to use in its collection activities. it considers the balance in the allowance account when making the bad debt expense estimate. it provides the best estimate of the net realizable value of accounts receivable. oit best adheres to principle of cause and effect recognition. A...
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King Companies, Inc. King Companies, Inc. (KCI) is a private company that owns five auto parts stores in urban Los Angeles, California. KCl has gone from two auto parts stores to five stores in the last three years, and it plans continued growth. Eric and Patricia King own the majority of the shares in KCI....
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