Under the allowance method of accounting for bad debts, the recognition of bad debt expense
A)increases current assets and decreases net income.
B)decreases current assets and increases net income.
C)increases current assets and net income.
D)decreases current assets and net income.

Question

Quizplus · Accepted Answer

Under the allowance method, bad debt expense is recognized as an expense and is subtracted from revenues to arrive at net income, thereby decreasing net income. Additionally, the allowance for doubtful accounts account is created as a contra asset account which decreases the overall value of current assets. Therefore, the correct option is to decrease current assets and net income.

Under the Allowance Method of Accounting for Bad Debts, the Recognition