Multiple Choice
In the context of journal entries, the debit is the amount you record on the left side of an account. What is the credit?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following accounts is debited when recording bad debt expense?
A
Cash
B
Accounts Receivable
C
Bad Debt Expense
D
Allowance for Doubtful Accounts
Verified step by step guidance1
Understand the concept of bad debt expense: Bad debt expense represents the cost of accounts receivable that a company does not expect to collect. It is recorded to reflect the anticipated losses from uncollectible accounts.
Learn the accounting method used: Companies typically use the allowance method to account for bad debts. This method involves estimating uncollectible accounts and recording them in advance.
Identify the accounts involved: When recording bad debt expense, two accounts are affected: 'Bad Debt Expense' (an expense account) and 'Allowance for Doubtful Accounts' (a contra-asset account).
Determine the journal entry: To record bad debt expense, the 'Bad Debt Expense' account is debited, and the 'Allowance for Doubtful Accounts' account is credited. This reflects the estimated uncollectible amount.
Understand why other accounts are not debited: 'Cash' is not affected because no cash is involved in this transaction, and 'Accounts Receivable' is not directly debited because the allowance method uses the 'Allowance for Doubtful Accounts' to adjust the receivables indirectly.
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