What Are Incentive Contracts? Explain When a Buyer Writes an Incentive

question 25

Essay

What are incentive contracts? Explain when a buyer writes an incentive contract.

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Definitions:

Allowance for Doubtful Accounts

A contra-asset account used to estimate and offset the amount of receivables that may not be collected.

Uncollectible Accounts

Accounts receivable that a company does not expect to collect due to customer defaults.

Bad Debt Expense

The estimated amount of credit sales that are not expected to be collected, representing potential loss to the company.

Allowance Method

An accounting technique used to account for bad debts, where estimated uncollectible accounts are expensed, adjusting the accounts receivable balance.