The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the
A) direct write-off method.
B) percentage of receivables basis.
C) percentage of sales basis.
D) percentage of receivables and percentage of sales basis.

Question

Quizplus · Accepted Answer

The existing balance in Allowance for Doubtful Accounts is taken into consideration when computing bad debts expense on the percentage of receivables basis. This method calculates bad debts based on a percentage of the total accounts receivable balance, and the allowance for doubtful accounts is adjusted accordingly. In contrast, the direct write-off method does not consider any existing balance in the allowance for doubtful accounts, and the percentage of sales basis only considers sales made during the period. The combination of both percentage of receivables and percentage of sales basis does not affect whether the existing balance in the allowance for doubtful accounts is considered or not.

The Existing Balance in Allowance for Doubtful Accounts Is Considered