Which method estimates uncollectible accounts by using the total accounts receivable at the end of the period?

• A. Aging of accounts receivable
• B. Direct write-off
• C. Percentage of accounts receivable
• D. Cash flow analysis

Answer: (C)

The method that estimates uncollectible accounts using the total accounts receivable at the end of the period is the percentage of accounts receivable method. This approach involves applying a predetermined percentage to the total accounts receivable balance to estimate the amount expected to be uncollectible based on historical data or industry standards. This provides a straightforward way to estimate bad debts, as it considers the size of the receivables at a specific point in time.

By focusing on the entire accounts receivable balance, this method aligns with the accrual accounting principle, which emphasizes matching expenses to the revenues they help generate. Thus, the allowance for uncollectible accounts is properly recorded at the end of the accounting period to reflect the estimated credit losses.

In contrast, other methods mentioned, such as aging of accounts receivable, focus on categorizing receivables based on the length of time outstanding to better analyze the likelihood of collection. The direct write-off method recognizes bad debts only when specific accounts are deemed uncollectible, which does not provide a timely estimate or match to the period’s revenues. Lastly, cash flow analysis is concerned with cash movements rather than the estimation of uncollectible accounts and is not applicable for this specific analysis.