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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following is a true statement about a company that uses the allowance method for accounting for doubtful accounts?

The allowance for doubtful accounts is reported as a liability on the balance sheet.

Accounts receivable are written off only when the customer declares bankruptcy.

Bad debt expense is estimated and recorded in the same period as the related sales revenue.

No adjusting entry is required at the end of the period for uncollectible accounts.

Previous problemNext problem

Verified step by step guidance

Understand the allowance method for accounting for doubtful accounts. This method is used to estimate and record bad debt expense in the same period as the related sales revenue, ensuring compliance with the matching principle in accounting.

Clarify the role of the allowance for doubtful accounts. It is a contra-asset account, not a liability, and is reported on the balance sheet as a reduction to accounts receivable.

Recognize that accounts receivable are written off when they are deemed uncollectible, not necessarily only when the customer declares bankruptcy. The write-off process involves reducing both accounts receivable and the allowance for doubtful accounts.

Understand the need for an adjusting entry at the end of the period. An adjusting entry is required to estimate uncollectible accounts and record bad debt expense, ensuring the financial statements reflect the expected realizable value of accounts receivable.

Conclude that the correct statement is: 'Bad debt expense is estimated and recorded in the same period as the related sales revenue,' as this aligns with the principles of the allowance method and the matching principle.