Which of the following statements is true regarding the two allowance approaches used to estimate bad debts?

Question

BlackTom AI · Accepted Answer

Turning to the topic of bad debt estimation methods, each option makes a claim about how these approaches use or interact with the allowance account.
Option 1: 'The percentage-of-receivables approach takes into account the existing balance in the allowance for bad debts account.' This is accurate because the percentage-of-receivables (or aging) method estimates bad debt expense based on outstanding receivables and adjusts the allowance for bad debts to reflect the desired ending balance, thereby incorporating the existing allowance balance into the calculation.
Option 2: 'The percentage-of-sales approach takes into account the existing balance in the allowance for bad debts account.' This is not correct. The percentage-of-sales method estimates bad debt expense as a percentage of credit sales and typically ignores the current balance in the allowance account, focusing on income statement impact rather than adjusting the existing allowance balance.
Option 3: 'The direct write-off method takes into account the existing balance in the allowance for bad debts account.' The direct write-off method does not use an allowance account at all; it writes off bad debts only when a specific account is determined to be uncollectible, so there is no ongoing allowance balance to consider.
Option 4: 'The direct write-off method does a better job of matching revenues and expenses.' This statement is incorrect because the direct write-off method recognizes bad debt expense only when a specific account is deemed uncollectible, which can distort the timing of expense recognition and generally yields a poorer matching of revenues and expenses compared with the allowance methods.
In summary, only Option 1 accurately describes the interaction between the percentage-of-receivables approach and the existing allowance balance, while the other options misstate how the methods relate to the allowance account or the matching of revenues and expenses.

Which of the following statements is true regarding the two allowance approaches used to estimate bad debts?单项选择题

类似问题

Is the following statement true or false? In the products of methylation-hydrolysis, every -OH group corresponds to the position of a glycosidic bond in the starting polysaccharide.

Which of the follwoing structures represents amylopectin?

Which of the following is true about an aldopentose?I. It is a monosaccharide.II. It contains a CHO groupIII. It is a disaccharide.IV. It is an oligosaccharide.

For stock A, we have 𝛽 𝑖 = 0.70. Suppose the expected market risk premium next year is 9% and the risk-free rate is 3%. What is the expected return of this stock based on the CAPM? (Please answer in % and round to 2 decimal places. If the answer is 8.057%, then in the box, write 8.06)

The following graph shows the Security Market Line in the current economy. If a stock has a β of 1.2, what is the expected return of this stock based on the CAPM? (Please answer in % and round to 2 decimal places. If the answer is 8.057%, then in the box, write 8.06)

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单