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

Bad debt expense is reported on the income statement as:

A contra-revenue account

A non-operating expense

An operating expense

A reduction of accounts receivable

Previous problemNext problem

Verified step by step guidance

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 an estimate of uncollectible amounts and is recorded to comply with the matching principle in accounting.

Identify where bad debt expense is reported: Bad debt expense is reported on the income statement as part of operating expenses. Operating expenses include costs incurred during the normal course of business operations, such as selling, general, and administrative expenses.

Clarify why it is not a contra-revenue account: A contra-revenue account reduces revenue directly, such as sales returns and allowances. Bad debt expense does not reduce revenue but instead reflects the cost of uncollectible receivables.

Explain why it is not a non-operating expense: Non-operating expenses are costs unrelated to the core business operations, such as interest expense or losses on asset sales. Bad debt expense arises from the company's primary activity of extending credit to customers, making it an operating expense.

Discuss why it is not a reduction of accounts receivable: While bad debt expense is related to accounts receivable, it is recorded as an expense on the income statement, not directly as a reduction of accounts receivable. The reduction of accounts receivable occurs through the allowance for doubtful accounts, which is a contra-asset account on the balance sheet.