An existing balance in Allowance for Doubtful Accounts is not considered when the estimate of loss is based on
A) a percent of net credit sales.
B) an aging of accounts receivable.
C) a percent of total accounts receivable outstanding.
D) a percent of net income.

Question

Quizplus · Accepted Answer

When the estimate of loss is based on a percent of net credit sales, it does not take into account the existing balance in Allowance for Doubtful Accounts. This method assumes that the expected losses on credit sales are directly proportional to the total amount of credit sales, without considering the current state of the company's accounts receivable balance or the likelihood of collection for individual customers.

An Existing Balance in Allowance for Doubtful Accounts Is Not