When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when
A) a sale is made.
B) an account becomes bad and is written off.
C) management estimates the amount of uncollectibles.
D) a customer's account becomes past-due.

Question

Quizplus · Accepted Answer

The allowance method requires management to estimate the amount of uncollectible accounts and record a corresponding amount in the Bad Debts Expense account. This estimation is typically done at the end of an accounting period, based on factors such as historical collection rates, current economic conditions, and the aging of accounts receivable. Therefore, Choice C is the correct answer.

Choices A, B, and D are incorrect because they do not accurately reflect when Bad Debts Expense should be debited under the allowance method. While a sale may ultimately result in a bad debt, the expense is not recorded until management estimates the amount of uncollectibles. Similarly, a write-off only affects the balance in the Allowance for Doubtful Accounts account, not Bad Debts Expense. Finally, a past-due account may be an indication of a potential bad debt, but it does not provide sufficient information to determine the exact amount of the uncollectible account.

When the Allowance Method Is Used to Account for Uncollectible