The Allowance Method Is Used by a Firm

question 79

Multiple Choice

The allowance method is used by a firm

• A)to estimate for uncollectibles when it knows that at the time of sale, it will experience some reduction in future cash flows and this amount can be estimated with reasonable precision in order to reduce reported earnings in the period of sale to the amount of the expected net cash collections.
• B)when the customer has the right to return the product for a refund and the firm can estimate with reasonable precision the amount of returns at the time of sale.
• C)when the customer has the right to repairs or replacement under warranty if the purchased product is defective, and the firm can estimate with reasonable precision the amount of warranty costs at the time of sale.
• D)all of the above.
• E)none of the above.

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Definitions:

Product Differentiation

A marketing strategy that involves distinguishing a product or service from others in the market to make it more attractive to a particular target market.

Pull Phase

A stage in supply chain management where production and distribution are driven by actual demand rather than forecasted demand.

Postponement

A strategy of delaying the final production or distribution of a product until customer orders are received to reduce inventory costs and increase customization.

Product Differentiation

The process of distinguishing a product or service from others, to make it more attractive to a particular target market.