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other differences between percentage of net sales allowance method, and ageing of accounts receivables allowance method

5 August, 2015 - 14:41

GST also highlights a difference between the net credit sales allowance method, and the ageing of accounts receivable allowance methods : in the latter, an overall weighted amount of the accounts receivables is calculated as the estimate of bad debts, but the allowance made should be less the GST that was collectible from the bad debt amount as well.

A more obvious difference between the two methods, is that the allowance of percentage of net credit sales does not take into account residual amounts in the bad debts allowance account, whereas the residual in the allowance account in the ageing of accounts receivables is regarded as part of the current ageing estimate for the bad debts : so in the percentage of net credit sales method, the allowance account increases by the allowance calculated for the current net credit sales, but in the ageing of accounts receivables method , the allowance is made equal to current ageing allowance calculated. Therefore, the bad debts expense recorded at end of period for the ageing of AR method will be the difference of the allowance calculated and the residual balance of the allowance for bad debts account.