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

Question

Quizplus · Accepted Answer

Bad Debts Expense is debited when management estimates the amount of uncollectibles using the allowance method. This estimation is based on factors such as past experience, economic conditions, and customer creditworthiness. When an account becomes bad and is written off, it is removed from the accounts receivable balance and the allowance for doubtful accounts is credited. A customer's account becoming past due or a sale being made does not directly affect the Bad Debts Expense account under the allowance method.

When the Allowance Method Is Used to Account for Uncollectible