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Advantages and disadvantages of methods of provision for bad debts 0 replies,1481 views

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(A) the balance of law which is in accordance with the final percentage of accounts receivable balances as a percentage of estimated bad debts method. The percentage of bad debts by enterprises based on past data or experience of their own determination. In the balance of the percentage method, an enterprise should be the end of each accounting period under this accounts receivable balances and bad debt rate to estimate the corresponding end of the balance due account for bad debts, it has been before adjustment for bad debts account in the balance the difference between the current period should be mentioned that the amount of bad debts. Balance method using the percentage of bad debt provision is calculated as follows: 1. The first time, provision for bad debts is calculated: the current provision for bad debts should = end accounts receivable balance percentage of provision for bad debts 2. After the provision Provision for bad debts is calculated: the current provision for bad debts should be = current receivables shall be calculated according to provision for bad debts amount + (or -) for bad debts account debit balance (or credit balance) (b) Ageing analysis This is based on the length of accounts receivable aging method to estimate the bad debt losses. In general, the longer the aging of accounts receivable, the greater the possibility of occurrence of bad debts. To this end, the company's accounts receivable are grouped by age length were estimated to determine the percentage of different provision for bad debts, bad debt losses to make the results more in line with the objective situation. Aging analysis and balance as percentage of law in the provision for bad debts, taking into account the existing balance of the account and then make adjustments. These two methods are the views from the balance sheet to estimate the bad debt, pay attention to the final balance due for bad debts, the balance sheet accounts receivable to a more reasonable valuation is realized. However, not all accounts receivable at end of current period credit sales generated, may contain receivables arising from sales of previous years, the two methods used to calculate the bad debt expense can not be fully in line with current sales revenue, In practice, the aging analysis also makes the accounting treatment of costs have increased. (C) Sales percentage method which is based on a percentage of total business sales estimated bad debt losses method. Percentages are based on the enterprise in the past actual bad debt and the relationship between sales management and marketing policies with the production changes determined. In practice, enterprises can also estimate the percentage of bad debts by credit losses. Can be seen that the percentage of sales method used in determining each year the amount of bad debts should be mentioned, it does not need to consider the existing provision for bad debts account balance. From the income statement point of view, because this method is mainly based on the income statement to estimate the current sales revenue figures for bad debt losses, bad debt expense and sales revenue can better cooperate more in line with the concept of ratio. However, due to bad debt provision for bad debts without taking into account the balance of the original account in the past, if the prior year loss estimates bad debts is not automatically the case for error correction, balance sheet, accounts receivable, net will not necessarily correct reflect their realizable value. Therefore, the use of sales percentage method should also periodically assess the adequacy of provision for bad debts, and make timely adjustments in order to more reasonably reflect the financial situation. (D) for the specific identification method is the actual situation of each receivable bad debt losses were estimated method. For example, the company is based on 5% of accounts receivable from unit to calculate the bad debt, but there are clear indications of an enterprise repayment difficulties, this business can be individually identified accounts receivable bad debt reserve method in respect of 10% or other. Use the same accounting period in the specific identification method of receivables from other accounts receivable bad debt provision removed. Specific identification method and the percentage of sales is different from the percentage of the balance of the main features of law lies in two aspects, one of the provision for bad debts is no longer based on the total sales of goods or credit, but the customer's credit status and repayment ability; Second, the ratio of bad debts owed to all customers no longer have the same ratio with one, but different credit rates are also different in its application. As long as the survey clearly the credit status of each customer and repayment ability, then the provision under which determine the ratio of each customer and arrears, can account for bad debts.
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