The balance in Allowance for Doubtful Accounts will directly impact the end-of-period adjustment for bad debt expense when using the
A) allowance method based on aging the receivables
B) direct write-off method
C) accrual method
D) declining value method

Question

Quizplus · Accepted Answer

The allowance method based on aging the receivables requires an estimate of the amount of accounts receivable that will not be collected. The balance in the Allowance for Doubtful Accounts is used to adjust the amount of bad debt expense reported on the income statement. This adjustment is made at the end of the accounting period based on the aging of the receivables and the estimated percentage of each category that will be uncollectible. The direct write-off method does not use an allowance account, so the balance in Allowance for Doubtful Accounts is irrelevant. The accrual method may or may not use an allowance account, but it is the aging of the receivables that determines the adjustment to bad debt expense, not the balance in the Allowance for Doubtful Accounts. The declining value method is not commonly used for accounting for bad debt expense.

The Balance in Allowance for Doubtful Accounts Will Directly Impact