bad debts practices of selected small …（坏账实践选择小u2026）.pdf

Rev. Integr. Bus. Econ. Res. Vol 1(1) 163 BAD DEBTS PRACTICES OF SELECTED SMALL AND MEDIUM ENTERPRISES IN THE PHILIPPINES Venus C. Ibarra University of Guam venus.ibarra@ ABSTRACT The concept of bad debts expense is relevant to companies that use the accrual basis of accounting and are heavy on credit sales. Uncollectible accounts or bad debts reduce revenue and recognition of bad debts is crucial in presenting the correct revenues of the company. This paper looks at the bad debts practices of 130 selected small and medium enterprises in the Philippines. This study shows whether or not the practices are in accordance with generally accepted accounting principles (GAAP), whether there are significant differences in the methods depending on their business location and type of business. This study also determines how bad debts expense and bad debts written-off affect the overall operating expenses of the businesses. Findings show that SMEs in all areas surveyed did not follow generally accepted principles of matching in handling and recording bad debts. Out of 130 respondents, 38.5% use the direct write-off method instead of the allowance method. Only 30.7% uses the allowance method broken down as follows: percentage of accounts receivable (16.1%); percentage of sales (6.9%); and aging (7.7%). A high percentage of the respondents (30.8%) do not have any method of handling bad debts. There are no significant differences in the bad debts practices by location or type of businesses. Bad debts represent a very small percentage (4.39%) of the operating expenses of companies. The bad debts expense estimates were almost the same as the bad debts written off. Keywords: Bad debts practices of SMEs