Equivalence of the 3 Methods of Estimating Bad Debts

Damito D. Magpantay

Abstract: When first learned, the three (3) methods of estimating bad debts appear distinct from one another. But upon closer examination, all three methods actually exhibit a common attribute that is at the same time unique for each business entity. Having known this shared feature led this researcher to establish equivalence and identify the formulas to convert experience rates compliant with the requirements of all three methods. Hence, a business entity may now effectively vary its approach in estimating doubtful accounts without having to be concerned that such new approach may either lead to a result that is far less accurate or compel it to veer away from existing policies and practices it uses to monitor overdue accounts

Keywords: bad debts, accounts receivable, overdue accounts, doubtful accounts, experience rates