Asked by Adrian Barrera on Jul 03, 2024
Verified
The balance of the Allowance for Doubtful Accounts prior to making the adjusting entry to record Bad Debts Expense
A) is relevant when using the percentage of receivables basis.
B) is relevant when debit card sales are made.
C) is relevant when notes receivable are used.
D) never shows a debit balance at this stage in the accounting cycle.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is a contra-asset account that reduces the total receivables reported to reflect the amount expected to be uncollectible.
Bad Debts Expense
The cost associated with accounts receivable that a company is unable to collect, recognized as an expense.
- Ascertain the balance of the Allowance for Doubtful Accounts preceding and subsequent to adjustments.
Verified Answer
ZK
Zybrea KnightJul 09, 2024
Final Answer :
A
Explanation :
The balance of the Allowance for Doubtful Accounts is relevant when using the percentage of receivables basis because it is adjusted based on the estimated percentage of outstanding receivables that are expected to become uncollectible. This method directly considers the existing balance in the allowance account before making the adjustment.
Learning Objectives
- Ascertain the balance of the Allowance for Doubtful Accounts preceding and subsequent to adjustments.
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