Asked by Nancy Lainez on Jun 26, 2024
Verified
You have just received notice that a customer with an Accounts Receivable balance of $500 has gone bankrupt and will not make any future payments.Assuming you use the allowance method for uncollectible accounts, the entry you make is to
A) debit Allowance for Doubtful Accounts and credit Bad Debts Expense.
B) debit Allowance for Doubtful Accounts and credit Accounts Receivable.
C) debit Bad Debts Expense and credit Allowance for Doubtful Accounts.
D) debit Bad Debts Expense and credit Accounts Receivable.
Allowance Method
An accounting technique used to estimate and deduct bad debts from accounts receivable.
Accounts Receivable
Amounts owed to a business by its customers for goods or services delivered but not yet paid for.
Bankrupt
A legal status of a person or entity that cannot repay the debts it owes to creditors.
- Gain insight into the effects of account write-offs on total assets and net accounts receivable.
Verified Answer
OG
Orlando González FalcónJun 27, 2024
Final Answer :
B
Explanation :
When using the allowance method, writing off an account receivable due to bankruptcy involves debiting the Allowance for Doubtful Accounts and crediting Accounts Receivable. This action removes the receivable from the books and reduces the allowance account, without affecting the income statement.
Learning Objectives
- Gain insight into the effects of account write-offs on total assets and net accounts receivable.