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Which difference correctly distinguishes the analysis-of-receivables method from the percent-of-sales method when an opening allowance balance exists?
APercent of sales targets a closing balance and nets the existing balance; analysis of receivables records the amount in full
BBoth methods always ignore the existing allowance balance entirely
CBoth methods always net the calculated figure against the existing balance
DAnalysis of receivables targets a closing balance and nets the existing balance; percent of sales records the calculated amount in full
Answer & Solution
Correct answer: D. Analysis of receivables targets a closing balance and nets the existing balance; percent of sales records the calculated amount in full
1. Analysis of receivables sets a target closing balance, so the existing balance is netted off.
2. Percent of sales computes the entry from sales and records it in full, adding to any balance.
3. The option swapping the two methods reverses them.
4. The methods differ on netting, so the two options that treat them identically are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4 "Allowance Method - Percent of Sales", p.145_
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