In the aging of accounts receivable method for estimating uncollectible accounts, an aging schedule classifies accounts receivable based on which factor?

• A. The original sales invoice amount only, without regard to time outstanding
• B. The date the company issued its most recent financial statements
• C. The customer’s industry classification (e.g., retail, manufacturing, services)
• D. The length of time each receivable has been outstanding (days past due)

Answer: (D)

Verified step by step guidance

1. Understand that the aging of accounts receivable method is used to estimate uncollectible accounts by categorizing receivables based on how long they have been outstanding.
2. Recognize that an aging schedule groups accounts receivable into different time buckets, such as 0-30 days, 31-60 days, 61-90 days, and over 90 days past due.
3. Know that the key factor for classification in the aging schedule is the length of time each receivable has been outstanding, which helps assess the likelihood of collection.
4. Realize that older receivables (those outstanding for longer periods) generally have a higher probability of being uncollectible, so different percentages of estimated uncollectibility are applied to each age group.
5. Conclude that the aging method focuses on the days past due rather than the original invoice amount, the date of financial statements, or the customer's industry classification.