An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated 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.

Question

Quizplus · Accepted Answer

The allowance method estimates and reports bad debts expense based on credit sales, and also reports accounts receivable at the estimated amount to be collected, making it the correct choice. The aging of notes receivable is a method used to determine the allowance for doubtful accounts for notes receivable specifically. The adjustment method for uncollectible debts is not a commonly used accounting method. The direct write-off method only records bad debts when they are actually deemed uncollectible, and does not estimate bad debts expense. The cash basis method does not consider accounts receivable or bad debts expense, as it only records revenue when cash is received.

An Accounting Procedure That (1) Estimates and Reports Bad Debts