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On the balance sheet, where do the Accounts receivable and Allowance for receivables amounts come from?
ATheir current ledger balances
BThe estimated default rate applied to sales
CLast year's audited closing figures
DThe total of all write-offs made in the year
Answer & Solution
Correct answer: A. Their current ledger balances
1. The balance sheet reports the current ledger balances of both accounts.
2. Receivables less the allowance gives net realisable value.
3. A default rate on sales estimates the expense, not the reported balances, so that option is wrong.
4. Prior-year figures and write-off totals are not what is reported, so those options are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4.2 "Allowance Method", p.141_
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