Final answer:
In the aging method for estimating uncollectible accounts, older accounts are deemed less likely to be collected. This method classifies accounts based on how long they are past due and incorporates expected losses into financial planning and statements.
Option 'a' is the correct.
Step-by-step explanation:
When using an aging method for estimating uncollectible accounts, the correct answer is that older accounts are considered less likely to be collected. The aging method takes into consideration the number of days an account is past due and classifies them accordingly.
Accounts that are older are assumed to have a higher risk of non-collection, which means a business may consider them less likely to be paid and thus regard them as more likely to become uncollectible.
A well-run bank factors in the possibility that a small percentage of borrowers will not repay their loans on time, or at all. This assumption is part of their planning and is embedded into their annual expense calculations, including an allowance for doubtful accounts.
The value of a bank's loans on its balance sheet reflects a certain level of risk, proportional to the expected number of loan defaults. Unexpected increases in loan defaults, as seen during economic recessions, can greatly affect a bank's net worth, as the value of their loans declines significantly.
Therefore, in the context of the aging method, option a. Older accounts are considered less likely to be collected, is correct. This understanding helps a bank or any business managing receivables to establish an appropriate allowance for doubtful accounts, thereby ensuring that their financial statements reflect a more accurate picture of the financial health of the business.