Question

Assume that VFC estimates $900 in bad debts at the end of the accounting period.

a. Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts
b. Debit Allowance for Doubtful Accounts, Credit Bad Debt Expense
c. Debit Bad Debt Expense, Credit Accounts Receivable
d. Debit Accounts Receivable, Credit Bad Debt Expense

Answer 1

The correct entry for estimating bad debts is to debit Bad Debt Expense and credit Allowance for Doubtful Accounts. This reflects an expected loss in Accounts Receivable and increases the contra-asset account to reduce net receivables.

Step-by-step explanation:

When VFC estimates bad debts, they must make an adjusting journal entry to reflect the estimated amount of accounts receivable that will not be collected. The correct entry in this case is:

• Debit Bad Debt Expense
• Credit Allowance for Doubtful Accounts

This entry increases the Bad Debt Expense on the income statement, indicating an expense the company anticipates, and it also increases the Allowance for Doubtful Accounts on the balance sheet, which is a contra-asset account that reduces the net amount of Accounts Receivable.

Option a. Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts is the correct answer.