Which of the following statements regarding the allowance method of accounting for uncollectible receivables is incorrect?
A) Bad debt expense is not estimated.
B) The Allowance for Bad Debts is used to hold the pool of "unknown" uncollectible accounts.
C) The business does not wait to see which customers will not pay when estimating the allowance for bad debts.
D) The allowance method is based on the matching principle.

Question

Quizplus · Accepted Answer

The statement that bad debt expense is not estimated is incorrect. The allowance method requires an estimate of the amount of uncollectible receivables, which is then used to calculate the allowance for bad debts. This allowance is then used to adjust the balance in the accounts receivable account to the estimated net realizable value.

Which of the Following Statements Regarding the Allowance Method of Accounting