Which of the following concepts relates to using the allowance method in accounting for accounts receivable?
A) Bad debt expense is an estimate that is based on historical and prospective information.
B) Bad debt expense is based on the actual amounts determined to be uncollectible.
C) Bad debt expense is an estimate that is based only on an analysis of the receivables aging.
D) Bad debt expense is management's determination of which accounts will be sent to the attorney for collection.

Question

Quizplus · Accepted Answer

The allowance method is used in accounting for accounts receivable to estimate the amount of bad debt expense based on historical and prospective information. It is an estimation process based on past experience and an analysis of the current situation, rather than a determination by management of which accounts will be sent to the attorney for collection. Therefore, options B and D are incorrect. Option C also doesn't fully describe the approach used in the allowance method, which considers multiple factors beyond just receivables aging.

Which of the Following Concepts Relates to Using the Allowance