The Allowance for Doubtful Accounts Will Not Be Precise by Either

question 35

Multiple Choice

The allowance for doubtful accounts will not be precise by either the client or the auditor because of which of the following reasons?

• A) It is an accounting estimate based upon judgment.
• B) GAAP is not clear on the calculation of the allowance.
• C) It is merely a reserve that is reversed by the client as income is needed for profitable results.
• D) The precision is determined by the results of confirmation responses.

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Definitions:

Long-Lived Assets

Assets that are expected to provide economic benefits to a business for a period longer than one year, such as buildings, machinery, and equipment.

Interest

Interest is the cost of borrowing money or the payment received for lending money, typically expressed as an annual percentage of the principal amount.

Double-Declining-Balance

A method of accelerated depreciation that results in higher depreciation expense in the early years of an asset's life.

Estimated Life

The expected duration or operational lifespan of an asset, determining how long it will be useful and depreciated in accounting records.