The method of accounting for losses from uncollectible accounts that results in a valuation of the accounts receivable on the balance sheet that is a more reasonable estimate of the actual amount expected to be collected is
A)the direct charge-off method.
B)the allowance method based on a percentage of net credit sales.
C)either the allowance method or the direct charge-off method.
D)the allowance method based on aging the accounts receivable.

Question

Quizplus · Accepted Answer

The allowance method based on aging the accounts receivable is the most accurate method for estimating the amount of uncollectible accounts. This method considers the age of each account and applies a percentage to estimate the portion of the account that may not be collectible. This results in a more accurate valuation of the accounts receivable on the balance sheet. The direct charge-off method is not appropriate because it delays the recognition of bad debt expense until the account is actually deemed uncollectible, which can result in significant delays and inaccuracies in financial reporting. The allowance method based on a percentage of net credit sales is also not as accurate as the aging method because it does not consider the age of each account and may result in over- or underestimation of bad debt expense.

The Method of Accounting for Losses from Uncollectible Accounts That