Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Net Accounts Receivable: Allowance for Doubtful Accounts

Financial Accounting

7. Receivables and Investments

Net Accounts Receivable: Allowance for Doubtful Accounts

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Multiple Choice

Which method of estimating uncollectible accounts is generally considered more accurate for determining the Allowance for Doubtful Accounts?

Direct write-off method

Aging of accounts receivable method

Percentage of sales method

Cash basis method

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Verified step by step guidance

Understand the purpose of estimating uncollectible accounts: Businesses estimate uncollectible accounts to account for potential losses from customers who may not pay their debts. This ensures accurate financial reporting and compliance with the matching principle in accounting.

Review the methods provided: The problem lists four methods—Direct Write-Off Method, Aging of Accounts Receivable Method, Percentage of Sales Method, and Cash Basis Method. Each method has different applications and levels of accuracy.

Eliminate inappropriate methods: The Direct Write-Off Method does not estimate uncollectible accounts but instead records bad debts only when they are confirmed, violating the matching principle. The Cash Basis Method is not used for estimating uncollectible accounts as it recognizes revenue and expenses only when cash is exchanged.

Compare the remaining methods: The Percentage of Sales Method estimates uncollectible accounts based on a fixed percentage of total sales, which is less precise because it does not consider the age of individual receivables. The Aging of Accounts Receivable Method categorizes receivables by age and applies different percentages of uncollectibility to each category, making it more accurate.

Conclude the most accurate method: The Aging of Accounts Receivable Method is generally considered more accurate for determining the Allowance for Doubtful Accounts because it provides a detailed analysis of receivables based on their age and likelihood of collection.