The Allowance Method of Recognizing Bad Debt Expense (As Opposed

question 55

Multiple Choice

The allowance method of recognizing bad debt expense (as opposed to the direct write-off method) can be applied in more than one way. What two conditions must be met before the allowance method can be used?

• A) Bad debts must be expected and material.
• B) Bad debts must be relevant and reliable.
• C) Bad debts must be consistent over time and the method used to estimate them must be consistently applied.
• D) Bad debts must be probable and estimable.

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Definitions:

Purchaser

An individual or entity that buys goods or services.

Quality of Goods

The degree to which goods meet the specified or implied criteria, often assessed in terms of durability, reliability, and performance.

Holder in Due Course

A party that has acquired a negotiable instrument in good faith and for value, and thus has certain protections against defenses and claims that could be asserted against the original payee.

Negotiable Instrument

A written document guaranteeing the payment of a specific amount of money, either on demand or at a set time, with the payer named on the document.