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 be paid.
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 are expected to be uncollectible in the future. Since it is impossible to predict with certainty which specific accounts will become uncollectible, this account is necessary when recording bad debts expense. By estimating the amount of uncollectible accounts and recording it in the allowance account, the company can more accurately reflect the true value of its accounts receivable on the balance sheet.

The Account Allowance for Doubtful Accounts Is Necessary Because