Question

Knowledge Check 01 The goal of the accounts receivable methods is to adjust the Allowance for Doubtful Accounts balance so that The unadjusted balance is equal to the estimate of the uncollectible accounts receivable. The adjusted balance is equal to the estimate of the uncollectible accounts receivable. The adjusted balance is equal to the estimate of the uncollectible sales. The unadjusted balance is equal to the ending accounts receivable balance.

Answer 1

The adjusted balance is equal to the estimate of uncollectible accounts receivable

Step-by-step explanation:

There are two methods to estimate bad debt expense, one is percentage of sales method and second is percentage of accounts receivables method.

In percentage of accounts receivables method, a percent say 5% of ending balance of accounts receivables is estimated as bad debt expense. This percentage is computed based on past experiences with the accounts.

If there is a credit or debut balance in allowance for doubtful debts, after adjustment the balance in the account should be equal to the uncollectible amount.