Under the allowance method of uncollectible accounts, the adjusting entry to estimate the amount that will become uncollectible affects the accounting equation by
A) increasing assets and increasing liabilities
B) increasing liabilities and decreasing stockholders' equity (expense)
C) decreasing assets and decreasing stockholders' equity (expense)
D) decreasing assets and increasing stockholders' equity (revenue)

Question

Quizplus · Accepted Answer

The allowance method involves creating an allowance for doubtful accounts, which is a contra asset account that reduces the total accounts receivable on the balance sheet. This adjustment decreases assets (accounts receivable) and increases expenses (bad debt expense), which decreases stockholders' equity.

Under the Allowance Method of Uncollectible Accounts, the Adjusting Entry