 In this presentation, we will take a look at multiple choice questions related to receivables. First question, calculating the allowance for doubtful accounts by examining the accounts receivable account is, a. the sales aging method, b. the percentage of accounts receivable method, c. the accounts payable aging method, d. the percentage of sales method, or e. not a valid method. We'll read through this again and go through the process of elimination. Calculating the allowance for doubtful accounts by examining the accounts receivable account is, a. the sales aging method. Now, if we go through this, we might first want to just think about this question and what we're talking about. Calculating the allowance for doubtful accounts, we're talking about the contra-acid account. When we think about the receivables, how much of those receivables do we think is uncollectible? There's a couple methods we can use. One is the receivables method where we try to value the receivables determine how much of them will not be collectible. Now, a. says the sales aging method, and that is concentrating not on the receivable, but on the revenue, on the sales side, on the income statement side. So, it's not a. b. says the percentage of accounts receivable method. That sounds kind of reasonable. We're dealing with the accounts receivable side in order to determine how much of them are uncollectible. C. says the accounts payable aging method. We're not going to use the payable, so that's kind of deceiving because it has payable and it sounds kind of like the accounts receivable aging method. So, it's not c. D. says the percentage of sales method. And once again, that's concentrated on the sales side. We could concentrate on the sales side, but here it says we're concentrating on the receivable side. So, that's not it. And e. says not a valid method. And it seems to be a valid method. We have to either concentrate on the receivables or the sales. Either of them are valid to do. So, b. looks like the correct answer. Once again, calculating the allowance for doubtful accounts by examining the accounts receivable account is b. the percentage of accounts receivable method. Now, note they could get more detail just in terms of the receivable depending on who we're talking to how detailed we can get in terms of the receivables method. Meaning, we could just take a percentage of the receivable total as a whole, which probably would not be as accurate if we took a percentage of an aging type method, if we broke it out into an aging account, and then took the percentage there. So, if we took that more detailed method, you could think of it as three different methods. But in essence, we're either focusing on the balance sheet, the accounts receivable to figure out the allowance amount or on the income statement on sales. Next question. Calculating the allowance for doubtful accounts based on credit sales is a. the sales aging method b. the percentage of accounts receivable method c. the accounts receivable aging method d. the percent of sales method or e. not a valid method. Once again, we'll look at the process of elimination going through these a second time. Calculating the allowance for doubtful accounts based on credit sales is. So, once again, we're looking at the allowance for doubtful accounts, but this time concentrating on not the receivable size to do so, but the sales side, the income statement side. So, because there's two sides to transaction, remember, one's going to be a debit to a bad debt expense, an income statement account, and the other's going to be the allowance for doubtful accounts, an asset account, a contract asset. So, a says the sales aging method. Now, that is focusing on the income statement, the sales side. So, we'll leave that for now. B says the percentage of accounts receivable method. That's going to focus on the receivables, and we're focusing on the other side of it. We're focusing on the sales side. So, I'm going to say that's not it. C says the accounts receivable aging method. And again, that's focusing in on the receivables. We're looking at the income statement side. So, it's not C. D says the percentage of sales method. So, that is focusing in on the sales. So, it looks like it's the right side we're looking at. I'll keep that for now. E says not a valid method. And it's going to be, it is going to be valid. We could focus on the sales or on the receivables. So, we're left with A and D. Once again, calculating the allowance for doubtful accounts based on credit sales is either A or D, either the sale of aging method, the sales aging method, or the percentage of sales method. Now, the first one might sound familiar with this aging method, but that's typically what we age is the receivables when we're aging the receivable side of things. So, we don't really do that same thing typically for the sales side of things. On the sales side of things, we would take the percentage of the sales or the percentage of the credit sales typically. So, believe D is the more correct answer here. So, answer being calculating the allowance for doubtful accounts based on credit sales is D, the percentage of sales method. Next question, next question. The matching principle requires A, that expenses be expensed in any time period as long as they reduce net income. B, the use of the direct write-off method. C, expense to be recorded when cash is paid. D, income be recognized when earned. E, the use of the allowance method. So, we'll go through the process of elimination now. The matching principle requires A, that expenses be expensed in any time period as long as there are reduced net income. Now, just intuitively, that just doesn't seem to make, we can just expense anything anytime we want in any time period. That doesn't really make sense. You know, we have to restrict that somehow, some way. And that's what the matching principle does. It says we can't just expense everything in any time period we want. Even though expenses when expense will always decrease net income, that's what expenses do. And then B says, so we're going to eliminate that one. So, B says the use of the direct write-off method. Now, again, even if we don't know what the matching principle is, we probably should, at this point, if we're looking at the allowance method and the direct write-off method, should know that we want to be able to just know that the book, the methodology, the preferred method, is going to be the allowance method. So, it's not likely that a accounting method is going to require the use of the direct write-off method, the unpreferred method. So, I'm going to say that's probably not going to be it. And then C says the expense to be recorded when cash is paid. Now, that is talking about the cash basis rather than the accrual basis. And the matching principle is one of the major two accrual principles. And it doesn't say that we have recorded expenses when cash is paid, but when the expense is incurred in the same time period as revenue was generated. So, it's not C. D says income be recorded when earned. And you might look at that and say, that sounds kind of reasonable. I remember that that's a key accrual principle, right? Income is recorded when earned. I'll leave that for now. E says the use of the allowance method. So, and that sounds pretty good because we typically, the answers often in this area of the questions related to receivables will be the allowance method being the one we want to use. So, we're left with D and E. So, let's read through this one more time. The matching principle requires D, income be recorded when earned, or E, the use of the allowance method. So, the matching principle isn't D because D has to do with the revenue recognition principle. The other of the two major principles has to do with the revenue side, not really the expense side. The matching principle has to do with timing on the expense side. So, that's why it's not really D. And note that since we're talking about receivables here, that's why we might be in a situation we would assume that we're applying these principles to the allowance method, the direct write-off method. And the use of the allowance method would be the correct answer because it applies the matching principle by trying to match up the bad debt expense that will be incurred with the related income that was used to generate it in the same time period. So, E is the most correct answer. The matching principle requires E, the use of the allowance method.