Answer
The two basic allowance methods include:
1. Bad debts based on credit sales
2. Bad debts based on the balance in the trade accounts receivable account.
Work Step by Step
The first method tends to focus on the income statement and attempts to match bad debts with the revenues generated by the sales in the same period while the rationale for the second method is based on focusing on the balance sheet and attempting to value the accounts receivable at their net realizable value.
