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 an account becomes uncollectible and must be written off under the allowance method, which of the following is the correct journal entry?

Debit Cash; Credit Accounts Receivable

Debit Accounts Receivable; Credit Allowance for Doubtful Accounts

Debit Bad Debt Expense; Credit Accounts Receivable

Debit Allowance for Doubtful Accounts; Credit Accounts Receivable

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Verified step by step guidance

Understand the allowance method: Under the allowance method, businesses estimate uncollectible accounts and record them as an expense in advance, creating an Allowance for Doubtful Accounts (a contra-asset account). This method ensures compliance with the matching principle in accounting.

Identify the scenario: When an account is determined to be uncollectible, it must be written off. Writing off an account means removing the balance of the uncollectible account from Accounts Receivable and reducing the Allowance for Doubtful Accounts.

Determine the correct journal entry: To write off the uncollectible account, you debit the Allowance for Doubtful Accounts (to decrease the contra-asset account) and credit Accounts Receivable (to remove the uncollectible account from the books).

Analyze why other options are incorrect: For example, 'Debit Cash; Credit Accounts Receivable' is incorrect because no cash is received when writing off an uncollectible account. Similarly, 'Debit Bad Debt Expense; Credit Accounts Receivable' is incorrect because the expense was already recorded when the allowance was created.

Apply the journal entry: The correct journal entry is 'Debit Allowance for Doubtful Accounts; Credit Accounts Receivable,' which reflects the removal of the uncollectible account and the adjustment to the allowance account.