Accountants argue that which of the following approaches to estimating Allowance for Bad Debts provides a realistic estimate of the net receivables?
A) taking a percentage of net sales
B) taking a percentage of revenue
C) aging the accounts receivable
D) analyzing the sales on account

Question

Quizplus · Accepted Answer

Aging the accounts receivable allows for a more accurate estimate of the amount of accounts that are likely to be uncollectible, based on the length of time they have been outstanding. This approach takes into consideration the specific demographics of the company's accounts receivable and is therefore considered to be the most realistic approach. Taking a percentage of net sales or revenue does not take into account the age or likelihood of payment of individual accounts. Analyzing sales on account may assist in identifying potential problem accounts, but does not provide a comprehensive estimate of the net receivables.

Accountants Argue That Which of the Following Approaches to Estimating