Which of the following statements regarding the allowance method of accounting for uncollectible receivables is incorrect​?

Question

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Part 1
A.
The Allowance for Bad Debts is used to hold the pool of​ "unknown" uncollectible accounts.
B.
The allowance method is based on the matching principle.
C.
Bad debt expense is not estimated.
D.
The business does not wait to see which customers will not pay when estimating the allowance for bad debts.

Answer 1

The incorrect statement regarding the allowance method of accounting for uncollectible receivables is:

C. Bad debt expense is not estimated.

In fact, under the allowance method, bad debt expense is estimated based on various methods, such as the percentage of sales or the aging of accounts receivable. This estimation is essential for adhering to the matching principle, as it recognizes the expected losses in the same period that the related revenues are recognized.