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

How do accountants typically estimate the amount of a company's uncollectible accounts expense?

By only writing off accounts when customers declare bankruptcy

By using the cash basis of accounting for all receivables

By applying a percentage to total credit sales based on historical data

By recording all accounts receivable as uncollectible at year-end

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Verified step by step guidance

Understand the concept of uncollectible accounts expense: This is an estimate of the amount of accounts receivable that a company does not expect to collect due to customers' inability to pay.

Learn the common methods used to estimate uncollectible accounts: Accountants typically use historical data to apply a percentage to total credit sales or accounts receivable. This is known as the percentage of sales method or the percentage of receivables method.

Focus on the percentage of sales method: This method involves analyzing past data to determine the percentage of credit sales that were uncollectible. For example, if historical data shows that 2% of credit sales are uncollectible, this percentage is applied to the current period's credit sales to estimate the expense.

Understand why other options are incorrect: Writing off accounts only when customers declare bankruptcy is reactive and does not estimate uncollectible accounts proactively. Using the cash basis of accounting for receivables is not in line with accrual accounting principles. Recording all accounts receivable as uncollectible at year-end is overly conservative and not realistic.

Apply the correct method: Accountants use historical data to calculate the percentage of uncollectible accounts and apply it to total credit sales. This ensures the estimate is based on reliable and relevant information.