Question

The allowance method that assumes a given percent of a company's credit sales for the period is uncollectible is:

a-The percent of sales method
b-The percent of accounts receivable method.
c-The aging of accounts receivable method.

Answer 1

The allowance method based on a given percent of credit sales being uncollectible is called the percent of sales method. It estimates the uncollectible accounts using historical sales data and does not focus on the age of receivables like the aging method. The correct option is A.

Step-by-step explanation:

The allowance method that assumes a given percent of a company's credit sales for the period is uncollectible is: a-The percent of sales method. This approach estimates uncollectible accounts based on the historical percentage of sales that have not been collected.

It reflects the anticipation that a certain percentage of the current period's sales will eventually be uncollectible. The percent of accounts receivable method, on the other hand, estimates the uncollectible accounts based on the outstanding accounts receivable.

Lastly, the aging of accounts receivable method is a more detailed approach that categorizes receivables by how long they have been outstanding and applies different percentages to each category to estimate the allowance for doubtful accounts.