Question

Why does the allowance method require an estimate of the uncollectible accounts at year-end?

Answer 1

Solution:

Under the allowance method, bad debts expense are estimated at year end based on % of credit sale or % of accounts receivables or ageing of accounts receivables at the option of organization. after estimating uncollectible accounts, bad debts expenses recognized in income statement of the same year in which sales took place to fulfill matching principal of accounting and allowance account is created thru which actual bad debts will be written off.

In view of above reasons, the allowance method require an estimate of the uncollectible accounts at year-end.