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ACC 291 WEEK 1DQ 1

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Is it appropriate to utilize a hybrid of the percentage of sales and the percentage of
receivables methods of calculating the allowance for doubtful accounts? Do the Generally
Accepted Accounting Principles (GAAP) allow for utilizing both methods at the same time?
Why? How do you think your current or former employer organization records bad debt
expense for receivable accounts? Please include an explanation to support your response.
It is not appropriate to utilize a hybrid of the percentage of sales and the percentage of
receivables methods when recording the allowance for doubtful accounts. According to
Weygandt, Kimmel, and Kieso, both methods are accepted are generally accepted, but
management must make a choice to use one or the other. The reasoning is that percentage of
sales affects the income statement accounts sales and bad debts expense, matching expenses with
revenues. Whereas the percentage of receivables method affects the balance sheet accounts
receivable and allowance for doubtful accounts, producing a “…better estimate of cash realizable
value” (Weygandt, Kimmel, & Kieso, pg. 6). If a company applied a hybrid method, then the
amount of uncollectable accounts would be hard to realize.
I know my current employer records bad debt expense on the balance sheet, using the percentage
of receivables method, because I have access to his business account in Peachtree. However, I
can only assume that he does so because this method transfers directly to the cash flows
statement, which he uses to evaluate the company’s ability to maintain current spending levels.

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Reference:
Weygandt, J.J., Kimmel, P.D., & Kieso, D.E. Financial accounting (7th ed.). Hoboken, NJ: John
Wiley & Sons.

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I was having a hard time with this subject, and this was a great help.

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