Question

Which method requires first estimating the desired amount for the Allowance for Doubtful Accounts and then determining the amount of the expense required to get to this desired balance given the amount of the unadjusted balance? Multiple Choice

A. Percentage of bad debts method

B. Direct write-off method

C. Aging of accounts receivable method

D. Percentage of credit sales method

Answer 1

Answer C. Aging of accounts receivable method.

Accounts receivable method is a method of accounting for uncollectible receivable. An accounts receivable aging is a report that provides lists of unpaid customer invoices and unused credit memos by date ranges. This report is primary told used by collections personnel to determine which invoice are overdue for payment. We analyzes specific individual accounts receivable according to the length of time they have been outstanding by

• applies historical rates of uncollectible appropriate to age
• Estimates desired ending balance of allowance for uncollectible accounts as percentage of the current ending balance of accounts receivable.