A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the allowance method based on

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The allowance method based on aging the accounts receivable focuses on estimating the amount of bad debts that is likely to occur based on the age of the outstanding receivables on the balance sheet. This method is more accurate than the direct write-off method and identifies bad debts before they become uncollectible. Option A (direct write-off) is not a balance sheet method and is based on when an account is deemed uncollectible. Option C (credit sales) is a component of the income statement, and option D (specific accounts) is a subjective method and may miss other accounts that become uncollectible.

A Method of Estimating Bad Debts That Focuses on the Balance