When a company extends credit to its customers, the company realizes it will not likely collect all of the related accounts receivable. As some accounts may prove to be uncollectible, a company must estimate its bad debt expense.
Required:

a. What is the purpose of estimating bad debt expense?
b. There are two relationships that can be used to estimate the bad debt expense for a company. Describe the two major relationships that can be used to estimate bad debts expense and the financial statement orientation of each.

Question

When a company extends credit to its customers, the company realizes it will not likely collect all of the related accounts receivable. As some accounts may prove to be uncollectible, a company must estimate its bad debt expense.
Required:

a. What is the purpose of estimating bad debt expense?
b. There are two relationships that can be used to estimate the bad debt expense for a company. Describe the two major relationships that can be used to estimate bad debts expense and the financial statement orientation of each.

Quizplus · Accepted Answer

The Answer of When a company extends credit to its customers, the company realizes it will not likely collect all of the related accounts receivable. As some accounts may prove to be uncollectible, a company must estimate its bad debt expense.
Required:

a. What is the purpose of estimating bad debt expense?
b. There are two relationships that can be used to estimate the bad debt expense for a company. Describe the two major relationships that can be used to estimate bad debts expense and the financial statement orientation of each.

When a Company Extends Credit to Its Customers, the Company