Question

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ________ method of accounts receivable. (Enter only one word.)

Answer 1

The aging method of accounts receivable involves categorizing outstanding receivables by age and applying different percentages of uncollectibility to each category, based on historical data, to estimate uncollectible accounts.

Step-by-step explanation:

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the aging method of accounts receivable. This method involves analyzing the accounts receivable based on how long they have been outstanding. The longer an account is past due, the higher the likelihood it won't be collected. Companies often categorize receivables into time frames (e.g., 0-30 days, 31-60 days, 61-90 days, etc.) and apply different percentages perceived as uncollectible to each category, based on historical data. This results in a more targeted approach to estimating bad debt expenses.