Question: Anth Company has significant amounts of trade accounts receivable. Anth uses the allowance method to estimate bad debts instead of the specific write-off method. During the year, some specific accounts were written off as uncollectible, and some that were previously written off as uncollectible were collected.
Anth also has some interest-bearing notes receivable for which the face amount plus interest at the prevailing rate of interest is due at maturity. The notes were received on July 1, 2004, and are due on June 30, 2006.
Required:
What are the two basic allowance methods used to estimate bad debts, and what is the theoretical justification for each?