An Advantage of Basing Bad Debt Expense on the Historical

question 96

Multiple Choice

An advantage of basing bad debt expense on the historical relationship between bad debts and net credit sales is that

• A)it provides the best estimate of the net realizable value of accounts receivable
• B)it provides the best information to the credit department to use in its collection activities
• C)it best adheres to the matching concept
• D)it considers the balance in the allowance account when making the bad debt expense estimate

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Definitions:

Paid Wages

Refer to the sum of money paid to employees as compensation for their labor, including salaries, hourly wages, and commissions.

Accounting Equation

The fundamental formula in accounting that represents the relationship between a company's assets, liabilities, and shareholders' equity: Assets = Liabilities + Equity.

Investment Of Land

The act of spending money to purchase land as an investment, with the expectation that it will appreciate in value.

Accounting Equation

The foundational principle of accounting stating that Assets = Liabilities + Owner’s Equity, representing the structure of a balance sheet.