Bad Debt Expense – True or False

Practice Question

Intro to Financial Accounting
Sales Revenue, Receivables, and Cash Management
Bad Debt Expense
True or False

Bad debt expense is estimated based on actual uncollectible accounts from previous years.

Answer +
Correct Answer: FALSE
Explanation +

Bad debt expense is not typically based on actual write-offs from previous years. Instead, it is estimated using methods like the aging of accounts receivable or a percentage of credit sales.

These methods help anticipate future uncollectibles in line with the matching principle, ensuring expenses are recognized in the same period as related revenues.