Aardvark ResaleThis company sells merchandise only on credit. For the year ended December 31, the following data are available:
Sales$1,200,000
Sales returns and allowances50,000
Accounts Receivable--January 1225,000
Allowance for doubtful accounts--January 115,000
Collections during the year1,050,000
Accounts written off as uncollected during the year10,000
Refer to Aardvark Resale. Since the company has a choice of acceptable methods to estimate bad debts, what factors should be considered in the selection?
What will be an ideal response?
The percentage of net credit sales method emphasizes the matching principle. The aging method emphasizes the valuation of the receivables at the net amount to be collected. The company would be concerned with both income measurement and balance sheet valuation, but must choose one of the two approaches, most likely based on management philosophy. If most customer balances fall within a small range of variation, the percentage of net credit sales method, which is easier to apply, will probably give reasonable results for both income measurement and asset valuation. However, if there is a wide variation in the amounts of customer balances, and especially if some large customer balances are significantly past due and their collection is uncertain, then the aging method should give better results for both income measurement and asset valuation.
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a. $850,000 b. $857,000 c. $843,000 d. Cannot be determined without further information.
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Indicate whether the statement is true or false
In what ways are our cognitions important in the interpretation and progression of our relationships?
What will be an ideal response?