Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Net Accounts Receivable: Allowance for Doubtful Accounts

Financial Accounting

7. Receivables and Investments

Net Accounts Receivable: Allowance for Doubtful Accounts

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Multiple Choice

Under the allowance method, when is bad debt expense recorded?

Only when a specific account is determined to be uncollectible

In the same period as the related sales revenue is recognized

At the end of the fiscal year, regardless of sales activity

When cash is received from customers

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Verified step by step guidance

Understand the concept of the allowance method: The allowance method is used to estimate and record bad debt expense in the same accounting period as the related sales revenue. This ensures compliance with the matching principle, which states that expenses should be recognized in the same period as the revenues they help generate.

Review the matching principle: The matching principle is a fundamental accounting concept that requires expenses to be matched with the revenues they are associated with. In the case of bad debt expense, it is recorded in the same period as the sales revenue to reflect the expected uncollectible accounts.

Analyze the timing of bad debt expense recognition: Under the allowance method, bad debt expense is not recorded when a specific account is determined to be uncollectible or when cash is received from customers. Instead, it is estimated and recorded in the same period as the sales revenue.

Consider the estimation process: Businesses use historical data, industry averages, or other methods to estimate the amount of bad debt expense. This estimation is recorded as an adjusting entry at the end of the accounting period.

Understand the purpose of the allowance method: The allowance method ensures that financial statements provide a more accurate representation of a company's financial position by accounting for expected losses from uncollectible accounts in the same period as the related revenue.