Question

Craigmont uses the allowance method to account for uncollectible accounts?

Answer 1

Craigmont uses the allowance method to account for uncollectible accounts by estimating and recording an allowance for doubtful accounts.

Step-by-step explanation:

The allowance method is an accounting method used to estimate and record uncollectible accounts. Craigmont uses this method to account for uncollectible accounts. Under this method, a company estimates the amount of accounts receivable that will not be collected and records an allowance for doubtful accounts. This allowance reduces the accounts receivable balance on the balance sheet.

Answer 2

The allowance method is an accounting practice to estimate and account for uncollectible accounts, often reflected as an allowance for doubtful accounts on the balance sheet. It is important for accounting accuracy and is typically calculated based on a percentage of sales or a review of individual accounts.

Step-by-step explanation:

The allowance method is a technique used in accounting to manage and account for uncollectible accounts. This method entails estimating the amount of receivables that may not be collectable in the future, often proceeding to record this estimation as an allowance for doubtful accounts on the balance sheet. This creates a contra account that offsets the total accounts receivable, thus reflecting a more accurate picture of what the company realistically expects to collect.

Typically, a percentage of sales or a review of individual accounts is employed to establish the allowance. For instance, if the historical data indicates that 2% of sales are usually uncollectible, the company would record 2% of its sales as an allowance for doubtful accounts. It’s important for students of accounting to understand the journal entries associated with the allowance method, including recording the bad debt expense and adjusting the allowance for doubtful accounts.