Asked by Elena Franco on Apr 28, 2024
Verified
Which of the following is NOT true regarding the Allowance method?
A) The uncollectible accounts expense is estimated in advance of the write-off.
B) The estimate can be calculated as a percentage of sales or as a percentage of accounts receivable.
C) The method should be used if uncollectible accounts have a material effect on a company's financial statements.
D) This method is used for tax purposes.
Allowance Method
A financial approach used to anticipate and adjust for potential credit losses in accounts receivable.
Uncollectible Accounts Expense
An expense recorded by businesses to account for receivables that are considered irrecoverable, indicating customers are unlikely to pay their debts.
- Recognize the methods for estimating uncollectible accounts expense using the Allowance method.
- Differentiate between the Allowance method and Direct-write Off method for accounting for bad debts.
Verified Answer
CE
Carlos EduardoMay 02, 2024
Final Answer :
D
Explanation :
The Allowance method is not used for tax purposes, instead, the Direct Write-Off method is used for tax purposes.
Learning Objectives
- Recognize the methods for estimating uncollectible accounts expense using the Allowance method.
- Differentiate between the Allowance method and Direct-write Off method for accounting for bad debts.
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