If a company uses a percentage of net sales in computing the amount of uncollectible accounts expense:
A)No valuation allowance will be required.
B)The relationship between revenue and expenses is being stressed more than the valuation of receivables at the balance sheet date.
C)The existing balance in the Allowance for Doubtful Accounts will be increased sufficiently to equal the probable loss indicated by the percentage of net sales computation.
D)Any past-due accounts will be listed as a separate item in the balance sheet.

Question

Quizplus · Accepted Answer

Using a percentage of net sales in computing uncollectible accounts expense emphasizes the relationship between revenue and expenses, rather than the valuation of receivables at the balance sheet date. This method assumes that a percentage of sales will likely become uncollectible and estimates the bad debt expense accordingly. It does not directly impact the existing balance in the allowance for doubtful accounts, nor does it require the listing of past-due accounts as a separate item on the balance sheet.

If a Company Uses a Percentage of Net Sales in Computing