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Under the allowance method of accounting for bad debts, the company estimates the amount of bad...

Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur. True/False

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Answer #1

True.

Under Allowance method for bad debts, Company /Business entity estimate the Uncollectible amount of account receivables over the credit period according to the past experience. Company sets the credit period according to it's credit policies. After that identifies and section the credit sales according to the credit period and set a fixed percentage of Uncollectible and treat as bad debts and transferred to Allowances for bad debts. Generally receivables having higher credit period have higher percentage of Uncollectible because they have more probability to being bad debt.

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