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When a company uses the allowance method to measure bad debts, the amount of bad debts expense is estimated at the end of the accounting period.
The allowance method is used when adjusting accounts receivable on the balance sheet. This refers to amounts that have not been collected yet, such as bad debt.
The allowance method is used when adjusting accounts receivable on the balance sheet. This refers to amounts that have not been collected yet, such as bad debt.
When a company uses the allowance method to measure bad debts, ________: d. the amount of bad debts expense is estimated at the end of the accounting period?
Most companies or organization will often make use of allowance method so as to measure bad debts that arise as a result of selling their items or goods on credit.
The reason why the bad debt expenses is estimated at the end of the fiscal year is because the company might not collect or received the payment in full.
Based on this, at the end of the fiscal year of accounting the company will have to record the adjusted journal entry based on the amount of money the company is expecting to loss for the service they rendered or for the goods and services they sold on credit.
For example assuming a company credit sale to their customers is $1,000,000 for the month of October in which the company experience loss of 2% because the customers did not paid in full which means that the adjusted journal entry will be:
Debit Bad debt expense $20,000
($1,000,000×2%)
Credit Allowance for doubtful account $20,000
Inconclusion when a company uses the allowance method to measure bad debts, ________: d. the amount of bad debts expense is estimated at the end of the accounting period?
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