The current balance of Allowance for Doubtful Accounts is considered when calculating the current period's Bad Debts Expense under the following approach:
A)Balance sheet approach
B)Income statement approach
C)Direct write-off method
D)All of these answers are correct.

Question

Quizplus · Accepted Answer

The balance sheet approach considers the current balance of Allowance for Doubtful Accounts in order to estimate the amount of bad debts that will not be collected. By contrast, the income statement approach simply estimates the percentage of credit sales that will become uncollectible, without considering the current balance of the Allowance for Doubtful Accounts. The direct write-off method does not involve estimating bad debts at all, but instead simply writes off specific accounts as uncollectible when they are determined to be so. Therefore, the best choice is A, the balance sheet approach.

The Current Balance of Allowance for Doubtful Accounts Is Considered