Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Net Accounts Receivable: Allowance for Doubtful Accounts

Financial Accounting

7. Receivables and Investments

Net Accounts Receivable: Allowance for Doubtful Accounts

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Multiple Choice

When recording the estimated uncollectible accounts using the allowance method, which of the following best describes the effect on the Allowance for Doubtful Accounts?

A credit to a contra-asset account

A debit to an expense account

A credit to a liability account

A debit to a revenue account

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Verified step by step guidance

Understand the allowance method: The allowance method is used to estimate and record uncollectible accounts receivable. It involves creating an Allowance for Doubtful Accounts, which is a contra-asset account that reduces the total accounts receivable on the balance sheet.

Identify the correct account type: The Allowance for Doubtful Accounts is a contra-asset account, meaning it offsets the value of a related asset account (Accounts Receivable). It is not a liability, expense, or revenue account.

Determine the effect of recording estimated uncollectible accounts: When recording the estimated uncollectible accounts, the company increases the Allowance for Doubtful Accounts by crediting it. This reflects the anticipated reduction in collectible accounts receivable.

Understand the corresponding debit entry: The corresponding debit entry is made to Bad Debt Expense, which is an expense account. This recognizes the cost of uncollectible accounts in the income statement.

Summarize the journal entry: The journal entry for recording estimated uncollectible accounts involves debiting Bad Debt Expense and crediting the Allowance for Doubtful Accounts. This ensures proper financial statement presentation and adherence to the matching principle.