Your company has previously averaged about 26% of its accounts receivable in the "over 90 days past due" category.This year,the company hired a new collections manager and,as a result,management forecasts that only 18% of its accounts receivable will be in this category at the end of the current year.The company uses the aging of accounts receivable method of estimating Bad Debt Expense.If the total of credit sales and year-end balance in accounts receivable remain unchanged from the previous year and no write offs were made during the current year,this year's bad expense will:
A) increase over the estimate for previous months.
B) decrease over the estimate for previous months.
C) not change.
D) will depend on the percentage of credit sales deemed uncollectible.

Question

Quizplus · Accepted Answer

Since the company hired a new collections manager and forecasted a decrease in the percentage of accounts receivable in the "over 90 days past due" category, it suggests that the collections process has improved. Therefore, the aging of accounts receivable method will estimate a lower amount of Bad Debt Expense for the current year, leading to a decrease in the estimate compared to previous months.

Your Company Has Previously Averaged About 26% of Its Accounts