Determining Whether a Firm's Financial Position Is Improving or Deteriorating

question 67

True/False

Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method of measuring a firm's performance over time.

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Definitions:

Percentage-of-Receivables Basis

A method used to estimate the amount of bad debt expense by applying a fixed percentage to the total amount of accounts receivable.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of a company's receivables that may not be collectible.

Bad Debt Expense

An expense reported on the income statement, representing the amount of non-collectible accounts receivable during a period.

Direct Write-off Method

An accounting method where bad debts are expensed only when they are deemed uncollectible.