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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Under the allowance method, why do we make an entry to record bad debt expense in the period of sale rather than in the period in which an account is determined to be uncollectible?

To determine

Allowance Method:

It is a method of recognizing the bad debt before its actual occurrence i.e. on estimation basis. In this method, the bad debt is recorded in the books at the time of sale of the goods on making an estimate about the bad debt as per the past records.

The reason for recording entry of bad debt expense in the sale period and not in the period in which that amount has become defaulted and does not have any chance of realization.

Explanation

The recording of bad debts in the sale period is the concept of the allowance method. This is made to maintain the real image of revenue for the period so that the revenues remain matched and the bad debts are recorded in advance w...

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