The Allowance Method for Bad Debts

question 6

Multiple Choice

The Allowance Method for bad debts:

• A)Should be used if uncollectible accounts have a material effect on the company's financial statements used by investors and creditors
• B)Complies with GAAP
• C)Estimates bad debt expense and establishes an allowance or reserve for uncollectible
• D)All of the above

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Definitions:

Cash Over and Short

An accounting line item that indicates the discrepancies between the amount of cash in the register and the amount of cash according to the accounting records.

Journal Entry

A record of financial transactions in the accounting system, showing accounts affected, amounts, and whether those accounts are debited or credited.

Petty Cash Account

A modest sum of money maintained readily available for covering various minor outlays instantly.

Establishing

The process of setting up or founding something, such as a new business, system, or set of rules.