Describe and contrast the procedures for estimating uncollectible accounts under the (a) income statement approach, (b) the balance sheet approach, and (c) the direct write-off approach.

(a)Under the income statement approach, bad debts expense is associated with the current year's sales. Based on the past several years, a company will calculate the average bad debts expense as a percent of net credit sales. It will then apply this percentage to the current year's sales to estimate its future bad debt losses.
(b)Under the balance sheet approach, the firm uses accounts receivable on the balance sheet as its basis to estimate bad debts expense. It is assumed the longer an account has been due and not paid, the more likely it is that it is not going to be collected. The procedure includes preparing a schedule based on an analysis of Accounts Receivable according to how many days past due the accounts are. This is called aging the Accounts Receivable. A sliding scale of percentages, based on previous experience, is applied to the total amount of receivables due in each time period. The calculation then serves as the basis for the total amount required in the Allowance for Doubtful Accounts account.
(c)Under the direct write-off approach, an account that is determined to be uncollectible is directly written off to the current year's Bad Debts Expense account without regard to when the original sale was made.