Question

An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period of the sales and (2) reports accounts receivable at the amount of cash to be collected is the:

A. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.

Answer 1

Answer:

A

Explanation:

The correct answer is the allowance method for accounting for bad debts

We must understand what is meant by bad debt. Due to the fact that not all customers that purchase from the company on credit will pay the company , there must be a mechanism for the company to account for this unpaid sums. One of the mechanisms through which this is done is the allowance method.

It works by recording an estimate of bad debt in the same accounting period as the sales. The allowance method make use of the matching principle. The matching principle talks about the fact that expenses should be matched with the revenue within that same accounting period