The existing balance in Allowance for Doubtful Accounts is considered in computing bad debt expense in the
A) direct write-off method.
B) percentage of receivables basis.
C) percentage of sales basis.
D) percentage of receivables and percentage of sales basis.

Question

Quizplus · Accepted Answer

The balance in Allowance for Doubtful Accounts is considered when using the percentage of receivables basis method for calculating bad debt expense. This method takes into account the estimated percentage of uncollectible accounts based on the total amount of accounts receivable outstanding. The existing balance in the allowance account is used to adjust the estimated percentage to arrive at the actual bad debt expense for the period.

The Existing Balance in Allowance for Doubtful Accounts Is Considered