Home › ACCA › Financial Accounting › Receivables and Bad Debts › Under the analysis-of-receivables approach, what…
Under the analysis-of-receivables approach, what figure should the year-end adjusting entry produce?
AThe amount needed to bring the allowance ledger balance up to the estimated uncollectible total
BThe full estimated uncollectible total, regardless of any existing allowance balance
CA fixed percentage of credit sales made during the previous year
DThe total of all receivables outstanding at the year end
Answer & Solution
Correct answer: A. The amount needed to bring the allowance ledger balance up to the estimated uncollectible total
1. Analysis of receivables targets a desired closing allowance balance equal to estimated bad debts.
2. The adjusting entry is the amount needed to bring the existing allowance up to that target.
3. Recording the full estimate while ignoring any existing balance overstates the entry whenever a balance exists.
4. A percentage of sales is the other method; total receivables is unrelated. Both options are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4 "Allowance Method - Analysis of Receivables", p.141_
Related questions
On the balance sheet, where do the Accounts receivable and Allowance for receivables amounWhich difference correctly distinguishes the analysis-of-receivables method from the perceUnder the percent-of-sales method, credit sales were $400,000 with a 2% default rate, and Under the percent-of-sales method, credit sales last year were $400,000 and 2% are expecteAn analysis of receivables estimates $8,000 of bad debt for the year. The Allowance for reAn analysis of receivables estimates $8,000 of bad debt for the year. The Allowance for reAn analysis of receivables estimates $8,000 of bad debt for the year. The Allowance for reReceivables total $97,000 and the Allowance for receivables stands at $12,000. What is the