Final answer:
Under the allowance method, the estimated bad debts entry does not include a credit to Accounts Receivable, but rather a credit to the Allowance for Doubtful Accounts. The purpose is to estimate uncollectible accounts and not to directly reduce Accounts Receivable.
Step-by-step explanation:
The statement that under the allowance method, the entry to record the estimated bad debts for the period includes a credit to Accounts Receivable is B. false.
When a company estimates its bad debts using the allowance method, it records the adjustment with a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts, which is a contra account to Accounts Receivable, not a direct credit to Accounts Receivable itself.
Example of journal entry under the allowance method:
Debit: Bad Debts Expense
Credit: Allowance for Doubtful Accounts
The rationale behind this is to show the expected amount of accounts receivable that may not be collected and does not directly reduce the Accounts Receivable balance until specific accounts are deemed uncollectible.