Question

A company estimates that $1,000 of as accounts receivableis uncollectible at the end of the period and will make the following adjusting entry:

O No joumal entry is made under the allowance method until specific accounts are determined to be uncolectible
O Debit to Bad Detits Expense for $1,000
O Credit to Alowance for Doubtful Accounts
O Detait to Allonarice for Doubtful Accounts

Answer 1

The company should record an adjusting entry with a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for the estimated $1,000 of uncollectible accounts receivable, reflecting expected losses under the allowance method.

Step-by-step explanation:

The allowance for doubtful accounts is a contra-asset account that financial institutions and businesses use to estimate the amount of accounts receivable that may not be collectible. In the scenario provided, the company estimates that $1,000 of its accounts receivable is unlikely to be collected.

The appropriate journal entry under the allowance method would be a debit to Bad Debts Expense for $1,000 to record the anticipated loss and a corresponding credit to Allowance for Doubtful Accounts for $1,000. This entry recognizes the expense related to uncollectible accounts in the same period when the related sales are recorded, thereby adhering to the matching principle in accounting.