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:

Statement Of Owner's Equity

A financial document detailing changes in the equity of a company due to earnings, withdrawals, and other factors over a period.

Balance Sheet

A report detailing a corporation's assets, liabilities, and equity of shareholders at a certain moment.

Statement Of Owner's Equity

A financial statement that shows the changes in the equity of a company over a specific period, including contributions, withdrawals, and the company’s net income or loss.

Net Income

The amount of profit left after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from total revenues.