A company is using the percentage-of-credit-sales method to estimate their bad debts and has noticed that over the past few years there has been a build-up of a debit balance in the Allowance for uncollectibles account.Which of the following is most likely the cause?

Question

Quizplus · Accepted Answer

If there has been a build-up of a debit balance in the Allowance for uncollectibles account, it means that the company has been estimating a lower amount for bad debt expense than what is actually needed. This suggests that they have been consistently underestimating the bad debt expense, and thus not setting aside enough funds to cover potential uncollectible accounts.

A Company Is Using the Percentage-Of-Credit-Sales Method to Estimate Their