Computing bad debt expense by estimating the net realizable value of accounts receivable (ageing approach):

Question

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The ageing approach estimates the net realizable value of accounts receivable and causes an adjustment to the allowance account, which produces a balance in the account equal to the total estimated uncollectible amount. This approach emphasizes the balance sheet, not the income statement. It is not based primarily on the cost principle, and while the bad debt expense amount is related to credit sales, it is not always equal to uncollectible current credit sales.

Computing Bad Debt Expense by Estimating the Net Realizable Value