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

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When recording the estimate of bad debt expense at the end of an accounting period, which of the following journal entries is correct?

Debit Bad Debt Expense; Credit Allowance for Doubtful Accounts

Debit Bad Debt Expense; Credit Accounts Receivable

Debit Allowance for Doubtful Accounts; Credit Bad Debt Expense

Debit Accounts Receivable; Credit Bad Debt Expense

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Verified step by step guidance

Understand the concept of bad debt expense: Bad debt expense represents the estimated amount of accounts receivable that a company does not expect to collect. It is recorded to comply with the matching principle, ensuring expenses are recognized in the same period as the related revenues.

Learn about the Allowance for Doubtful Accounts: This is a contra-asset account used to reduce the accounts receivable balance to its net realizable value. It reflects the estimated uncollectible portion of receivables.

Determine the correct journal entry: To record bad debt expense, the company debits the Bad Debt Expense account (an expense account) and credits the Allowance for Doubtful Accounts (a contra-asset account). This entry does not directly affect Accounts Receivable at the time of estimation.

Analyze why other options are incorrect: For example, debiting Accounts Receivable and crediting Bad Debt Expense would directly reduce receivables, which is not appropriate during estimation. Similarly, debiting Allowance for Doubtful Accounts and crediting Bad Debt Expense reverses the intended entry.

Apply the correct journal entry: The correct journal entry is: Debit Bad Debt Expense; Credit Allowance for Doubtful Accounts. This reflects the estimated uncollectible amount without directly adjusting individual receivable accounts.