Question

Using the balance sheet approach to estimate Uncollectible Accounts, accounts which are 150 days old are

A. more likely to be collected than accounts 30-days old
B. equally likely to be collected as accounts 30-days old
C. less likely to be collected than accounts 30-days old

Answer 1

The correct option is C. less likely to be collected than accounts 30-days old.

When using the balance sheet approach to estimate Uncollectible Accounts, accounts which are 150 days old are less likely to be collected than accounts 30-days old.

Step-by-step explanation:

When using the balance sheet approach to estimate Uncollectible Accounts, accounts which are 150 days old are generally less likely to be collected than accounts 30-days old.

The balance sheet approach calculates the estimate of uncollectible accounts by analyzing the age of the accounts receivable, which includes the number of days the account is past due. The longer an account remains unpaid, the higher the likelihood that it will become uncollectible. This is because as time goes on, the chances of the debtor defaulting on the payment increase, making it less likely that the account will be collected.

For example, let's say a customer has an outstanding invoice that is 30-days old. There is still a relatively good chance that the customer will make payment. However, if the account becomes 150-days old, the likelihood of collection decreases significantly, as the account has remained unpaid for a longer period of time.