Comparing Allowance Methods (estimates of allowance for uncollectible accounts).

The textbook says that with the percentage of sales method, you take whatever your estimated uncollectible receivables were (say $300), and add whatever you get from the percentage method. So if you made 100k last year and assume 0.005 percent unreceivable, then you have $300 + $5000 = $5300 allowance for uncollectible accounts.

But if you take the aging method, let's say you started with uncollectible receivables of $300, and let's say the method takes you to $5000 of uncollectible receivables (for the sake of this comparison), your journal entry shows ($5000-$300) totalling $4700, and your general ledger shows $4700 + $300 = $5000 uncollectible receivables.

What confuses me is one method adds whatever you had in the first place. The other method deducts it from your estimate. I have no idea why. The text does not elaborate.

This post was edited by Canadian_Man on Nov 12 2016 07:24pm