Question

.   What is an advantage of using the percent age of receivables method of estimating uncollectible accounts?

a.       The direct write-off method does a better job of matching revenues and expenses than the allowance method.

b.       The percentage-of-sales approach takes into account the existing balance in the Accounts Receivable account.

c.       The direct write-off method takes into account the existing balance in the Allowance for Bad Debts account.

d.       The percentage-of-receivables approach takes into account the existing balance in the Allowance for Bad Debts account.

Answer 1

Option a is wrong because, direct write off method does not match expense and revenue like allowance method

Option b is wrong because, percentage of sales method does not consider existing bal. in accounts receivable account. This method only considers total credit sales or total sales made during the year.

Option c is wrong Because, direct write off method does not consider existing bal. in the allowance for bad debts account.

Option d is correct because, perecentage of receivables approach conisders the existing balance in the allowance for bad debts account to adjust the bad debt expense account and allowance for bad debt expense account.

hence, option d is the advantage of perecentage of receivables of estimating uncollectible accounts.

Option d is the correct answer