Your company has previously averaged about 26% of its accounts receivable in the "over 90 days past due" category but now forecasts 18% in this category.You use the aging of accounts receivable method of estimating bad debt expense.If the total of credit sales remains unchanged from previous months and no write offs are made,the estimate of bad expense based on the new forecast will:
A)increase over the estimate for previous months.
B)decrease over the estimate for previous months.
C)not change.
D)will depend on the percentage of credit sales deemed uncollectible.

Question

Quizplus · Accepted Answer

The aging of accounts receivable method estimates bad debt expense based on the percentage of accounts receivable that are expected to become uncollectible. If the company is forecasting a decrease in the percentage of accounts over 90 days past due, then the estimate of bad debt expense will decrease because fewer accounts are expected to become uncollectible. All other factors remaining the same, the estimate of bad debt expense will decrease with the decrease in the percentage of accounts over 90 days past due.

Your Company Has Previously Averaged About 26% of Its Accounts