For accounts receivable, the longer an account is outstanding, which of the following is generally true according to the aging of receivables method?

• A. The likelihood of collection decreases.
• B. No allowance for doubtful accounts is needed.
• C. The likelihood of collection increases.
• D. The account is written off immediately.

Answer: (A)

Verified step by step guidance

1. Understand the concept of the aging of receivables method: This method categorizes accounts receivable based on the length of time they have been outstanding. It is used to estimate the likelihood of collection and the allowance for doubtful accounts.
2. Recognize the relationship between the age of receivables and collection likelihood: Generally, the longer an account is outstanding, the less likely it is to be collected. This is a key principle in the aging of receivables method.
3. Consider the role of the allowance for doubtful accounts: The aging method helps businesses estimate the amount of uncollectible accounts and adjust the allowance for doubtful accounts accordingly. This ensures accurate financial reporting.
4. Evaluate the incorrect options: 'No allowance for doubtful accounts is needed' contradicts the purpose of the aging method. 'The likelihood of collection increases' is incorrect because older accounts are harder to collect. 'The account is written off immediately' is not true, as accounts are typically written off only after all collection efforts fail.
5. Conclude that the correct answer is: 'The likelihood of collection decreases,' as this aligns with the principle that older accounts are less likely to be collected.