ts) Based on our discussions, why was the Allowance for Bad Debt created? O To record the amount of accounts receivable written off during the period. O To record the net amount of accounts receivable that will be paid. To record the amount of accounts receivable that will most likely never be paid. To record the net sales amount from the last period that will probably never be paid.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
The allowance for doubtful accounts, also known as a bad debt reserve, is management's prediction of the number of receivable accounts that customers will not pay and is referred to as a "counter asset" since it reduces the value of an asset—in this case, the accounts receivable.
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