Final answer:
The student's question is regarding the aging approach used by Brown Cow Dairy to estimate Bad Debt Expense, an accounting method that classifies accounts receivable based on the time they've been outstanding and assigns a percentage of bad debt to each category according to historical data.
Step-by-step explanation:
The question revolves around Brown Cow Dairy's use of the aging approach to estimate Bad Debt Expense, which is a method used in accounting to anticipate the amount of accounts receivable that may not be collected. This approach categorizes receivables according to how long they have been outstanding, typically split into time periods such as current, 1-30 days past due, 31-60 days past due, etc., with a higher percentage of bad debt expense applied to older receivables. For instance, if most of the receivables in the 31-60 days bracket tend not to be paid, a higher percentage of those receivables would be recorded as a bad debt expense in anticipation of potential loss.
To apply this method, a company will review the historical data on collections and non-payments and use these patterns to develop a percentage of debt that is likely not collectible for each aging category. The sum of these amounts will then be used to estimate the total Bad Debt Expense, which is recorded against accounts receivable on the balance sheet to give a more realistic view of the collectible amount.