CHAPTER 5: ESTIMATION OF DOUBTFUL ACCOUNTS

3 METHODS OF ESTIMATING DOUBTFUL ACCOUNTS

1. Aging of Accounts Receivable or “Statement of

Financial Position Approach” (tinitignan yung age
kung gano na katagal)(tinitignan dito kung alin sa
mga a/r na ito ang hindi pa due. Ibig sabihin hindi
pa collectible. Halimbawa binigay mo sa kanyang
credit period is 1 month. Titignan mo lang kung 30
days na ba. Or past due na. kung lagpas na. Ibig
sabihin. For ex. Binigay mo sa kanya ay 30 days
para makabayad ng utang. Gaano katagal na
*(a)- inidentify how much yung total amount ng a/r sa
lagpas na. lagpas na ba ng 90 days?)
customer natin na not due or 1-30 days na past due.
* (b)- based on the experience of the company, under
 Involves analysis of NOT DUE or PAST DUE
category of not due, 1% lang yung mga hindi naccollect.
accounts receivables. (not due means good
1-30 days, 2%, and so on. Habang tumatagal, lalong
receivable or good account pa yon. Yung past
lumalaki yung percentage ng pagiging doubtful niya.
due is kailangang provide-an ng afbd. Lalo na
Kasi for ex. Ang credit period mo lang ay 30 days. 1 year
pag sobrang tagal na to the point worthless na.
na sinisingil mo hindi makabayad. More likely doubtful
kailangan ng alisin sa a/r)
na talagang macollect yan. Kaya kung mapapansin mo,
 When is the account Past Due? If it is beyond
lumalaki rin yung rate habang tumatagal. Kaya yung
the credit period.
mga rates na yan is not fixed. It depends on the
 ADVANTAGE experience of the company historically. Kung ayan yung
a. More accurate and scientific expenrience nila.
computation/detailed * (a x b) – multiply lang si balance and experience rate.
b. This method has the advantage of *50k- is the final amount of allowance for bad debts.
presenting fairly the accounts receivable in
the statement of financial position at net
realizable value.
 DISADVANTAGE
a. Violates the matching process (may
violation ng matching principle kasi
tinignan mo yung mismong a/r and hindi
yung revenue. Kabaliktaran ng percent of
sales. Yung percent of sales is talagang
nagffollow ng matching principle. Kasi yung
basis niyan is revenue/sales. Pero sa
method kasi na ito, dumeretso ka sa a/r.
walang matching between cost and
revenue. You recognize cost because you
estimated it based on the a/r balance. And
not the sales/revenue.)
b. Time consuming to do (if the company has
ALLOWANCE FOR BAD DEBTS
large number of a/r)
10000
40000
50000

Kung may existing na na balance si AFBD. For ex. 10k.

nung cinompute natin ngayong taon. Ang kailangan
nating irecognize na AFBD ay 50k. eh may balance na na
10k. therefore, pag magjjournal entry, ang irrecognize
mo lang ay 40k only. Kaya be mindful sa problem, percentage. Pag hindi sinabi sa problem, specifically
kailangan mong iconsider yung balance. total sales yon. Pero pag specifically sinabi na credit
sales or net sales yan ang basis. Net sales is
2. Percent (%) of Accounts Receivable or also computed: Gross sales less sales discount less sales
“Statement of Financial Position Approach” (may returns = net sales)
accounts receivable, immultiply lang yung  Multiply a % with the sales (credit sales or total
percentage) sales)
 ADVANTAGE
 Multiply a % by the open accounts receivable at  Simply to apply
the end of the period to get the REQUIRED  Matching of cost against revenue is
ALLOWANCE BALANCE. (not bad debts expense!!! achieved (does not violate matching
Allowance for bad debts ang kinukuha rito). principle)
 The % or rate is usually determined form past  DISADVANTAGE- unsatisfactory when there is a
experiences of the entity. consideration fluctuation in the proprtion of
 ADVANTAGE- simply to apply cash and credit sales periodically. (minsan kasi
 DISADVANTAGE- violates the matching of bad yung benta is hindi consistent. Minsan mataas,
debt loss against sales revenue. (like the aging of minsan mababa. Minsan mataas yung credit
receivable) sales kesa kay cash sales. Minsan si cash sales
naman yung mataas. Kaya nagffluctuate.
ILLUSTRATION: The balance of A/R is 2,000,000 and the Mahirap idetermine.
credit balance in the allowance for doubtful accounts is
P10,000. Doubtful accounts are estimated at 3% of A/R. ILLUSTRATION: The following information are presented
in the ledger: A/R – P1,000,000; Sales- P5,050,000; Sales
ACCOUNTS RECEIVABLE Return- P50,000 and Allowance for Bad dEbts- P20,000.
P2,000,000 Doubtful account is determined to be 1% of net sales.
(nakaindicate yung net sales!! Ignore a/r. kasi walang
kinalaman yan sa method na gagamitin mo. Ang
icconsider mo is sales, and sales return. Ang allowance
ALLOWANCE FOR BAD DEBTS for bad dets is hindi rin kasama.)
P10,000 BEG BAL
P50,000
ACCOUNTS RECEIVABLE
P60,000 ENDING BAL
P1,000,000
*2M x 3%= 60,000

BAD DEBTS EXPENSE

P50,000 ALLOWANCE FOR BAD DEBTS
P20,000 BEG BAL
P50,000
*50,000 lang yung cinonsider mong BDE
P70,000 ENDING BAL
*if tinanong how much is the total balance of allowance
JOURNAL ENTRY for bad debts. Hindi 50k, 70k ang sagot since may
Doubtful Accounts 50,000 existing na na 20k sa problem. Add yung 50k sa 20k.
Allowance for Doubtful Accounts 50,000
BAD DEBTS EXPENSE
NOTE! P50,000
Kung wala kang existing na balance kagaya nung 10k.
wala kang problema. yun yung ilalagay mo doon sa bad
debts. Bali 60k magiging bad debts mo. 5,050,000-50,000 = 5,000,000 x 1%= 50,000

3. Percent (%) of Sales or “Income Statement JOURNAL ENTRY

Approach” (may sales, immultiply lang yung Doubtful Accounts 50,000
percentage, para mag arrive ka with the amount of Allowance for Doubtful Accounts 50,000
either the bad debts expense and hindi mo
pinapakelaman yung allowance.)(pwedeng total
sales or credit sales ang maging basis ng
*Composite rate- isang rate lang sa total receivables.
*Aging schedule- needed of schedule.

*past due yung under 30 days, 30-60 days and so on.

For example: pag magrreport ng march, 60 days ng past
due.