What is a one-sentence summary of the following article?
To account for doubtful accounts, begin with your business's current and historical accounts receivable records. These should detail the business's various customers and their order amounts, along with whether or not those customers have paid for their orders in the past. The allowance for doubtful accounts is recorded before the actual accounts are (or are not) paid. This means that unlike your power bill or the cost of printer paper, you will not know what your actual doubtful debt expense will be. In other words, at the end of the period, you will have recorded all credit sales (sales not paid on delivery or in cash) in full, regardless of if they have been paid or not. Therefore, to record the credit sales that may not be paid for, you will have to estimate them beforehand, using one of several accounting methods. There are several different ways to go about estimating this expense, including: Using a percentage of total sales Using individual risk analysis Using a combination of the two Which one is the best choice for your business depends on the makeup of your customer base. The ideal consumer base and estimation process for each method are explained in the following steps.
Gather accounts receivable documents. Determine which estimation method to use.