Respuesta :
For financial reporting purposes, the allowance approach is necessary when bad debts are significant. It has three crucial characteristics During the same accounting period that sales occurred, uncollectible accounts receivable are estimated and compared to sales.
The allowance technique is setting aside a reserve for anticipated future bad debts. The reserve is calculated as a percentage of the sales made during a reporting period, with the percentage of sales possibly being adjusted for client risk.
How much cash a company should set aside for potential future bad or unrecoverable customer debt is determined using the allowance technique. It takes into account the price of the losses a business anticipates from giving customers credit.
It multiplies the accounts receivable by the relevant percentage for the aging period, puts those two sums together, and uses that result to estimate the allowance for dubious accounts.
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