The allowance method of accounting for bad debts records collection losses on the basis of estimates rather than waiting to determine which customers will not pay.

Question

Quizplus · Accepted Answer

The statement is true. The allowance method estimates the amount of bad debt losses and records them as an expense in the same accounting period as the related sales revenue, rather than waiting to determine which specific customers will not pay. This method follows the matching principle of accounting, which requires expenses to be recorded in the same period as the related revenue.

The Allowance Method of Accounting for Bad Debts Records Collection