Dealing with uncollectible accounts.There are two primary methods of determining the amount of receivable accounts will turn out to be bad or uncollectible.
The percentage of net sales method is to assign a percentage that you expect to be unable to collect on, based on past results or other criteria. Multiply your net sales by this percentage to determine your expected uncollectible amounts, and record that in the Uncollectible Accounts Expense account.
The accounts receivable aging method rates each customer’s receivable accounts according to when it is due, and assigns an estimated uncollectible percentage by age. This information is then recorded appropriately.
In theory the two methods should give similar results; this is seldom the case in practice.