Under the _____ procedure, the firm estimates and recognizes its bad debt expense; the offsetting credit increases the balance in the Allowance for Uncollectibles.Under the _____ procedure, the firm estimates the ending balance in the Allowance for Uncollectibles account and makes a credit entry to bring the balance to this amount; the offsetting debit is to Bad Debt Expense.
A)aging; percentage-of-sales
B)percentage-of-sales; aging
C)percentage-of-sales; direct charge-off
D)direct charge-off; percentage-of-sales
E)percentage-of-sales; indirect charge-off

Question

Quizplus · Accepted Answer

The description in the question matches the two common methods of estimating bad debt expense: aging method (estimating bad debts based on the age of accounts receivable) and percentage-of-sales method (estimating bad debts as a percentage of credit sales). The first method is known as the allowance method, where bad debt expense is estimated and recognized through an adjusting entry that increases the allowance for uncollectibles. The second method is known as the direct write-off method, where bad debt expense is recognized only when specific accounts are deemed uncollectible and written off. The percentage-of-sales method is a form of the allowance method, while the direct charge-off method is a different approach altogether. The indirect charge-off method is not a commonly used term in accounting.

Under the _____ Procedure, the Firm Estimates and Recognizes Its