Question

A method of estimating bad debts that focuses on the balance sheet rather than the income...

A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the allowance method based on

a.

direct write-off

b.

aging the trade receivable accounts

c.

credit sales

d.

specific accounts determined to be uncollectible
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Answer #1

Solution is Option b. Aging the trade receivable accounts

It is a method in which accounts receivables are classified according to their ages by arranging them with respect to the dates they are due to be received and then allowing bad-debts on the basis of the aging schedule. It is based on the accounts receivable balances which is a Balance sheet item.

Hence, a method of estimating bad debts that focuses on the balance sheet rather than the income statement is the allowance method based on aging the trade receivable accounts. All others are based on income statement items and balances.

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