Question

The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method

6. Requires a company to estimate bad debts expense related to the sales recorded in that period.

Short answer

The correct answer is the allowance method.

Step-by-step solution

Introduction

The amount of sales and bad debt expense is recorded, keeping in mind the famous accounting principle of revenue recognition.

Reason for the correct answer

The allowance method is the accounting for bad debt expense method. The amount of credit sales recorded in the previous period is used to calculate the amount of current bad debt expense for the firm.