Almost every asset and liability account requires significant judgments. Which of the following judgments is subject to allowance for noncollectibility?
A) Inventories.
B) Marketable securities.
C) Other receivables.
D) Deferred revenue.

Question

Quizplus · Accepted Answer

Other receivables are subject to allowance for noncollectibility. This is because they represent a claim on a customer or third party for payment, and there is always a risk that the customer or third party will not pay the full amount owed. Therefore, a company must make a judgment as to how much of the account is likely to be uncollectible and record an allowance for that amount.

The other options are not subject to allowance for noncollectibility. Inventories are valued at the lower of cost or net realizable value, which takes into account any expected losses due to obsolescence, damage, or other factors. Marketable securities are valued at fair value, and any declines in value are typically recognized as unrealized losses in the income statement. Deferred revenue represents payments received in advance for goods or services that have not yet been delivered, and it is not subject to allowance for noncollectibility since the payment has already been received.

Almost Every Asset and Liability Account Requires Significant Judgments