The allowance method bases bad debt expense on to an estimate of uncollectible accounts. The allowance system entails allocating a contingency for potential future bad debts.
The allowance method calculates the receivable accounts by increasing the delinquent accounts by the relevant chance for the aging period and then adding the two sums. The allowance system estimates uncollectable receivables and bad debts by revealing delinquent accounts at their doable value. In the other words, it's a framework that the controller employs to predict how much cash credit visitors will pay.
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