Under the Allowance Method of Accounting for Uncollectible Accounts

question 12

Multiple Choice

Under the allowance method of accounting for uncollectible accounts,

• A)the cash realizable value of accounts receivable is greater before an account is written off than after it is written off.
• B)Bad Debts Expense is debited when a specific account is written off as uncollectible.
• C)the cash realizable value of accounts receivable in the statement of financial position is the same before and after an account is written off.
• D)Allowance for Doubtful Accounts is closed each year to Income Summary.

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Definitions:

Subjective Approach

A method of decision-making or valuation based on personal judgments and opinions rather than objective data.

Risk Classes

Categories of investments grouped together based on their similar level of risk.

Discount Rates

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, often used in capital budgeting to evaluate potential projects.