Under the allowance method for uncollectible accounts, when a year-end adjustment is made for estimated uncollectible accounts,
A) total assets decrease.
B) total assets are unchanged.
C) net earnings are unchanged.
D) liabilities decrease.

Question

Quizplus · Accepted Answer

When a year-end adjustment is made for estimated uncollectible accounts under the allowance method, it increases the allowance for doubtful accounts (a contra asset account) and decreases net income due to the bad debt expense. This results in a decrease in total assets because the increase in the allowance for doubtful accounts reduces the net accounts receivable balance.

Under the Allowance Method for Uncollectible Accounts, When a Year-End