An accounting procedure that (1) estimates and reports bad debt expense from credit sales during the period of the sales and (2) reports accounts receivable at the amount of cash inflow that is expected from their collection is the
A) Allowance method of accounting for bad debts
B) Aging of accounts 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 debt expense based on credit sales during the period and reports accounts receivable at the expected cash inflow amount, making it the most appropriate option. The aging of accounts receivable is a way to estimate the allowance for doubtful accounts within the allowance method. The adjustment method for uncollectible debts and the direct write-off method are not recommended under Generally Accepted Accounting Principles (GAAP). The cash basis method of accounting for bad debts is not GAAP-compliant and hence not suitable for financial reporting purposes.

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