Which of the Following Concepts Relates to Using the Allowance

question 122

Multiple Choice

Which of the following concepts relates to using the allowance method in accounting for accounts receivable?

• A) Bad debt expense is an estimate that is based on historical and prospective information.
• B) Bad debt expense is based on the actual amounts determined to be uncollectible.
• C) Bad debt expense is an estimate that is based only on an analysis of the receivables aging.
• D) Bad debt expense is management's determination of which accounts will be sent to the attorney for collection.

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Definitions:

Proportion

A part, share, or number considered in comparative relation to a whole.

Vertical Analysis

A financial analysis method that expresses each item in a financial statement as a percentage of a base figure, facilitating comparison across companies or periods.

Net Income

Net income is the total earnings of a company after all expenses and taxes have been subtracted from total revenue, indicating the company's profitability.

Common Size Analysis

A financial analysis technique that expresses each line item on a financial statement as a percentage of a base figure to allow for comparison.