Question

Accounts receivable balances are required to be reflected at net realizable value as of the balance sheet date. Use of the allowance method for estimating bad debit is the preferred method because it:________
A) is required by GAAP.
B) it provides for better matching of revenue with expenses.
C) A and B
D) None of the above

Answer 1

Answer:

Accounts receivable balances are required to be reflected at net realizable value as of the balance sheet date. Use of the allowance method for estimating bad debt is the preferred method because it:________

C) A and B

Explanation:

Company XYZ can use the allowance method which ensures that the Accounts receivable balances are stated at their gross amount and not the net realizable value.  Therefore, the allowance account is a contrary account with normally a credit balance.  The allowance method is required by GAAP and provides for better matching of revenue with expenses.  Company XYZ can use two methods for estimating bad debt under the allowance method.  The first is the percentage sales method and the accounts receivable aging method.  Whichever method is chosen depends on the decision of management.