The Challenge Businesses Face When Estimating the Allowance for Previously

question 230

Multiple Choice

The challenge businesses face when estimating the allowance for previously recorded sales is that:

• A) at the time of the sale, it is not known which particular customer will be a "bad" customer
• B) past default rates are not a good predictor of future default rates
• C) in bad economic times, fewer customers will have problems with their payments
• D) those sales have been closed into retained earnings

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Definitions:

Insurance Contracts

Legal agreements that provide compensation for specific losses or damages in exchange for premium payments.

Leases

Contracts in which one party agrees to rent property, services, or goods from another party for a specified time period in exchange for payment.

Revenue

The total amount of money received by a company for goods sold or services provided during a certain time period.

IFRS

Stands for International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that is globally accepted for preparing financial statements.