[flg9597]

Can someone please explain what a normal fluctuation between these two accounts would be ? If bad debt expense increased, what effect on the allowance and overall AR would I expect to see ?

[Mike J]

Assume the Income Statement approach, you are estimating a certain percentage of the credit sales won't be collected. This works, mechanically, similar to how and why you depreciate an asset. You could indeed collect all of the sale. But because you don't know for sure (conservative) you sort of hazard a guess.

What does that look like? I would expect to see an allocation of expense to an allowance account at the same time you record a sale (debit to AR and credit to Sales).

Also you have an aging schedule to track the receivables for receipts. If you don't receive receivables you follow-up with the customer and/or write-off.

[Author]

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