The Allowance Method for Estimating and Reporting Bad Debt Expense

question 24

Multiple Choice

The allowance method for estimating and reporting bad debt expense:

• A) Demonstrates a practical application of the full-disclosure principle.
• B) Generally recognizes gains and losses on bad debts in the period when the related account receivable is removed from the accounting records.
• C) Is optional under GAAP for all retail companies.
• D) Generally adheres to the matching principle better than the specific write-off method.

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Definitions:

Factor Costs

The expenses associated with utilizing the factors of production, including labor, capital, and land, to produce goods or services.

Price of the Good

The amount of money required to purchase a specific product or service.

Suppliers' Expectations

The anticipations or forecasts of future conditions by suppliers that can influence their decisions on production, pricing, and stock levels.

Surplus

The amount of a commodity or service available beyond what is directly needed by its consumers, often leading to lower prices.