If a Company Uses the Balance Sheet Approach to Estimate

question 134

Multiple Choice

If a company uses the balance sheet approach to estimate bad debt expense,bad debt expense for a period can be determined by:

• A)Multiplying net credit sales by the bad debt experience ratio.
• B)Adding the beginning balance in the allowance for uncollectible accounts to the provision for uncollectible accounts and deducting the desired ending balance in the allowance for uncollectible accounts.
• C)Multiplying ending accounts receivable in each age category by the expected loss ratio for each age category.
• D)Taking the difference between the unadjusted balance in the allowance account and the desired balance.

---

Definitions:

Historical Cost

Historical cost refers to the original monetary value of an asset or expenditure recorded at the time of transaction, without adjusting for inflation or changes in market value.

Fair Value Measurements

An accounting standard for estimating the price at which an asset or liability could be exchanged in an orderly transaction between market participants at the measurement date.

Mark-to-Model

An accounting practice where the price or value of an asset is determined based on a financial model instead of current market prices.

Fair Value Accounting

An accounting approach where assets and liabilities are recorded at their current market value, rather than their historical cost.