Question
Which category do Bad debt fall
under? Refer to the following information to answer the next 4 questions (Q15 to Q18) Overheads are indirect costs that cannot be directly traced to specific products or services but are necessary for the overall operations of a business. These costs include various types of expenses such as administration, production, selling, and distribution overheads. Each category of overheads plays a distinct role in the functioning of a business. Accurate classification and allocation of these overheads are crucial for effective cost accounting, enabling businesses to determine the true cost of their products and services and make informed financial decisions. Understanding how to allocate and manage these overheads helps in analyzing the profitability and efficiency of different segments of the business, ensuring better financial control and strategic planning. The process of cost allocation involves assigning costs to cost centers or cost units, ensuring that each segment of the business is charged with its relevant expenses. This helps in analyzing the profitability and efficiency of different segments of the business, ensuring better financial control and strategic planning. Overheads also impact financial accounting, as adjustments for under-absorption or over-absorption need to be made to reflect the actual costs incurred. Understanding how to manage these overheads aids in financial analysis, budgeting, and forecasting, ultimately contributing to the overall financial health and sustainability of the business.Solution
Bad debts are classified as selling overheads because they are costs that arise from extending credit to customers, which is part of the sales process. These debts are recorded when customers fail to pay the amounts owed, impacting the overall expenses related to selling products.
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