Your company uses the aging of accounts receivable method.Net credit sales are unchanged from last year,the year-end balance in Accounts Receivable is unchanged from the previous year's ending balance,and there were no write-offs during the current year.The company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category at the end of the current year.The dollar amount of the adjustment to record Bad Debt Expense in the current year:
A) decline, thus increasing the ending balance of the Allowance for Doubtful Accounts account.
B) increase, thus increasing the ending balance of the Allowance for Doubtful Accounts account.
C) decline, thus reducing the ending balance of the Allowance for Doubtful Accounts account.
D) increase, thus reducing the ending balance of the Allowance for Doubtful Accounts account.

Question

Quizplus · Accepted Answer

The fact that the company has increased its percentage of accounts in the "over 90 days past due" category indicates that there is a higher likelihood that these accounts will not be collected. This means that the estimate of bad debts needs to be increased, resulting in an increase in the Bad Debt Expense and an increase in the ending balance of the Allowance for Doubtful Accounts account. The other options either suggest a decline in Bad Debt Expense or in the ending balance of the Allowance for Doubtful Accounts account, which is not supported by the information given.

Your Company Uses the Aging of Accounts Receivable Method