Question

What are the financial statement effects of recording bad debt expense using the allowance method?

a. Increase assets
b. Increase expenses
c. Increase revenues
d. Decrease expenses
e. Decrease assets

Answer 1

The financial statement effects of recording bad debt expense using the allowance method are an increase in expenses and a decrease in assets.

Step-by-step explanation:

The financial statement effects of recording bad debt expense using the allowance method are:

1. Increase expenses: When bad debt expense is recorded, it is recognized as an expense on the income statement, which decreases net income.
2. Decrease assets: The allowance method requires creating an allowance for doubtful accounts, which is a contra-asset account. This account is used to reduce the accounts receivable, resulting in a decrease in assets.

Therefore, the correct options for the financial statement effects of recording bad debt expense using the allowance method are:

• Increase expenses
• Decrease assets