Gross Accounts Receivable is $10,000.Allowance for Doubtful Accounts has a credit balance of $200.Net sales for the year are $150,000.In the past,2% of sales had proved uncollectible.What would be the adjusted balance of the Allowance account under the income statement approach?
A)$3,200
B)$2,800
C)$1,400
D)$3,000

Question

Quizplus · Accepted Answer

Under the income statement approach, the allowance for doubtful accounts is adjusted based on a percentage of the total sales, not on the existing balance in the allowance account. Given that 2% of $150,000 in sales are expected to be uncollectible, this amounts to $3,000 ($150,000 * 2%). The existing balance in the allowance account ($200 credit) is not considered in this calculation, making the adjusted balance $3,000.

Gross Accounts Receivable Is $10,000