Question

The use of the allowance for doubtful accounts approach:

a. should not be used if the customers are highly concentrated.

b. increases the allowance for doubtful accounts when an account is written off.

c. results in a matching of uncollectible accounts expense with the related sales that led to the expense.

d. does not recognize an expense when the allowance is set up

Answer 1

Ans - results in a matching of uncollectible accounts expense with the related sales that led to the expense (OPTION 'c')

Whenever there are sales, then there is also probability that there will be bad debts. Normally bad debts can be recorded in two ways, one is direct write-off and another is allowance method. In direct write off, we see that when an account is deemed uncollectible, than exact amount is recorded in customer's account and this increases bad debt expense. There is no matching principal.
In allowance method we see that an estimate is made in the period of sales regarding bad debts based on certain computational approaches. If there is any bad debt than the calculation matches bad debts with the related sales during the period.This includes debiting 'Bad debt expense' acccount and crediting 'Allowance for doubful debts' account. Because of its matching principal, allowance method is widely used

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