Question

The analysis of receivables method of costing inventory is based on the assumption that: a.the bad debt expense is recorded only when an account is determined to be worthless. b.the uncollectible accounts can be estimated as a percentage of credit sales. c.the bad debt expense is recorded by estimating uncollectible accounts at the end of the accounting period. d.the longer an account receivable is outstanding, the less likely that it will be collected.

Answer 1

Answer:

b.the uncollectible accounts can be estimated as a percentage of credit sales.

Explanation:

Accounts receivable refer to money that customer owes a business. Receivable arises because a company may sell its goods or services on credit. An analysis of account receivable involves an assessment of the aging report to determine the receivables that are likely not be paid.  

The allowance method is one way of managing the uncollectable accounts receivable. This method involves the creation of account bad debts expense account and a contra-asset account, the allowance for doubtful accounts. The business makes a record of the amount is expects not to be collected at the end of the accounting period. When a specific account receivable is confirmed as uncollectible, the accountant debits allowance for doubtful accounts while crediting accounts receivable. The assumption under this method is the bad debt expense can be estimated as a percentage of the total sales.