Question

thew analysis of receivables method of costing inventory is based on the assumption that: a. the bad debt expense is recorded only when an account is determined to be worthless. b. the longer an account receivable is outstanding, the less likely that it will be collected. c. the uncollectible accounts can be estimated as a percentage of credit sales. d. the bad debt expense is recorded by estimating uncollectible accounts at the end of the accounting period.

Answer 1

Ans - THE LONGER AN ACCOUNT RECEIVABLE IS OUTSTANDING, THE LESS LIKELY THAT IT WILL BE PAID (Option b)
Analysis of receivables method is basically a time period method which determines the probability of recovery of a debt based on the time passed. According to the receivables method, the longer the time has passed since the account receivable became due, the less will be the chances for its actual recovery. This method is therefore also known as Aging of receivables method. It involves dividing the accounts receivables into age groups such as 0-30 days, 30-90 days, above 90 days etc and ones in the last group are the most alarming and considered to be less likely to be collected.