The allowance method for uncollectibles is used by a firm
A)when it knows that at the time of sale, it will experience some reduction in future cash flows.
B)when the firm can estimate with reasonable precision the amount of reduction in future cash flows at the time of sale.
C)to reduce reported earnings in the period of sale to the amount of the expected net cash collections.
D)all of the above.
E)none of the above.

Question

Quizplus · Accepted Answer

The allowance method for uncollectibles is used when the firm knows that at the time of sale, it will experience some reduction in future cash flows and can estimate with reasonable precision the amount of reduction in future cash flows at the time of sale. The method is also used to reduce reported earnings in the period of sale to the amount of the expected net cash collections. Therefore, all of the options A, B, and C are correct.

The Allowance Method for Uncollectibles Is Used by a Firm