A Company Is Using the Percentage-Of- Credit- Sales Method to Estimate

question 2

Multiple Choice

A company is using the percentage-of- credit- sales method to estimate their bad debts and has noticed that over the past few years there has been a build-up of a debit balance in the Allowance for uncollectible accounts.Which of the following is a possible cause?

• A)Management might be trying to "manage the numbers".
• B)Management have been consistently overestimating the bad debt expense.
• C)The company has not written off enough accounts.
• D)The company has been selling more items on credit.

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Definitions:

Sales Tax Payable

A liability account that accumulates the collected sales tax from customers to be remitted to the respective tax authorities.

Asset Account

An asset account is a category in the financial statements that reports the value of a company's assets, such as cash, inventory, property, and equipment.

Liability Account

A type of accounting ledger entry that represents a company's legal debts or financial obligations that arise during business operations.

Invoice Value

The total amount shown on an invoice that a customer must pay, including the cost of goods or services, taxes, and any additional fees.