Which one of the following is the most accurate method for estimating uncollectible accounts? Select one:...

Which one of the following is the most accurate method for estimating uncollectible accounts?

Select one:

a. Aging of Accounts Receivable

b. Indirect write-off method

c. Percentage of Accounts Receivable

d. Percentage of sales

Solutions

Expert Solution

Which one of the following is the most accurate method for estimating uncollectible accounts?

The correct answer for the question is Option D - Percentage of Sales. Under this method, an allowance is created for bad debts based on the total credit sales of that period. A percentage of sales is estimated to be uncollectible and this percentage is determined by use of various factors like previous year data, competitor analysis, nature of the debtors. industry the company operates in, etc. This is the most accurate method for estimating uncollectible accounts.

Option A is incorrect. Under the Aging of accounts receivable method, the accounts receivable are classified according to their age and a percentage of uncolectible is estimated for each of the period for which accounts receivables are due.

Option B is incorrect . Indirect write off method is not the most accurate method for estimating uncollectible accounts.

Option C is incorrect . Under this method an allowance is created based on the pending accounts receivable balance from the debtors. However, this is not the most accurate method for estimating uncollectibles.

Please let me know if you have any questions via comments and all the best :) !

ekkarill92 answered 1 year ago

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