Asked by Jimmy Christiansen on May 26, 2024
Verified
Discuss the two methods for recording bad debt expense. What type of company uses each method?
Bad Debt Expense
An expense reported on the income statement due to receivables that are not expected to be collected.
Recording Methods
Various approaches or systems used to document financial transactions in accounting books or software.
- Recognize and implement techniques for calculating doubtful accounts.
- Understand the procedure and consequences of using the aging and direct write-off methods to record bad debts.
Verified Answer
BR
BINOY RAJESHMay 30, 2024
Final Answer :
The first method is the direct write-off method. Under this method, bad debt expense is recorded only when an account is deemed uncollectible. This method is most often used by small companies and those with few receivables.The second method is the allowance method. Under this method, bad debt expense is recorded by estimating bad debts at the end of the accounting period. Companies that have a large amount of receivables are required to use this method under generally accepted accounting principles
(GAAP).
(GAAP).
Learning Objectives
- Recognize and implement techniques for calculating doubtful accounts.
- Understand the procedure and consequences of using the aging and direct write-off methods to record bad debts.
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