The account Allowance for Doubtful Accounts is necessary because
A)when recording bad debts expense, it is not possible to know which specific accounts will not pay.
B)uncollectible accounts that are written off must be accumulated in a separate account.
C)a liability results when a credit sale is made.
D)management needs to accumulate all the credit losses over the years.

Question

Quizplus · Accepted Answer

Allowance for Doubtful Accounts is a contra-asset account that is used to estimate and record the amount of accounts receivable that is not expected to be collected. It is necessary because it is not possible to know exactly which specific accounts will not pay, so an estimate is used. When bad debts expense is recorded, it is recorded as an adjustment to the Allowance for Doubtful Accounts account rather than directly reducing accounts receivable.

The Account Allowance for Doubtful Accounts Is Necessary Because