Question

The company records an adjusting entry for $3,300 for estimated future uncollectible accounts. What is the purpose of this entry?

1) To increase the accounts receivable balance
2) To decrease the accounts receivable balance
3) To increase the bad debt expense
4) To decrease the bad debt expense

Answer 1

The adjusting entry for estimated uncollectible accounts is made to increase the bad debt expense, reflecting potential future losses and adhering to the matching principle of accounting.

Step-by-step explanation:

The purpose of recording an adjusting entry for $3,300 for estimated future uncollectible accounts is to increase the bad debt expense. This accounting entry is made to adhere to the matching principle, ensuring that expenses are recorded in the same period as the revenues they help generate. The entry would involve debiting the Bad Debt Expense account and crediting the Allowance for Doubtful Accounts, which is a contra-asset account linked to Accounts Receivable. Therefore, the correct answer to the question is 3) To increase the bad debt expense. By doing so, the company is proactively accounting for potential losses from credit sales that may not be collected, thus providing a more accurate representation of the company's financial health.