Question

The aging of accounts receivable method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the more likely it is to be collected. Group startsTrue or False

Answer 1

False

Which method for estimating bad debts is generally considered to be the most accurate?

Bad debt is a cost of extending credit to customers. Loans or unpaid balances that must be written off because they are no longer considered recoverable are referred to as bad debt. As there is always some default risk associated with offering credit to customers, this expense is a cost of doing business with them.

Since it is a temporary account, at the conclusion of the accounting period, its balance is closed (reduced to zero).

The proportion of credit sales approach is typically thought to be less accurate than the aging of accounts receivable method. In general, the longer a receivable stays unpaid, the less probable it is to be paid, and this is taken into account by the aging of accounts receivable approach.

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