Question

At December 31, 2017, Sorrento Inc. estimated bad debts as 3% of the outstanding balance of Accounts Receivable. At December 31, 2018, Sorrento determined that it should increase its estimate to 6.5%. This change is handled on a:

Answer 1

Prospective basis.

Step-by-step explanation:

It has been given that the estimated bed debts are 3% in the year 2017 while in the year 2018, this bed debt will increase to 6.5%.

Changes in regular estimates are part of a continuous improvement process. In many processes retrospective adjustment is interdicted.

Companies can record potential changes in estimates every year.