Multiple Choice
Which term refers to the amount of accounts receivable that a company expects to collect after accounting for estimated uncollectible accounts?
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7. Receivables and Investments
Net Accounts Receivable: Allowance for Doubtful Accounts
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The estimated expense for accounts that may not be collected is referred to as:
A
Allowance for Sales Returns
B
Interest Expense
C
Depreciation Expense
D
Bad Debt Expense
Verified step by step guidance1
Understand the concept of Bad Debt Expense: It represents the estimated amount of accounts receivable that a company does not expect to collect due to customers' inability or unwillingness to pay.
Recognize that Bad Debt Expense is recorded as part of the company's operating expenses in the income statement, reflecting the cost of doing business.
Learn how companies estimate Bad Debt Expense: This is typically done using methods such as the percentage of sales method or the aging of accounts receivable method.
Understand the relationship between Bad Debt Expense and the Allowance for Doubtful Accounts: The allowance is a contra-asset account that reduces accounts receivable on the balance sheet, while Bad Debt Expense is the periodic adjustment to reflect expected uncollectible amounts.
Note that Bad Debt Expense is distinct from other expenses like Allowance for Sales Returns, Interest Expense, or Depreciation Expense, as it specifically pertains to uncollectible accounts receivable.
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