When a company uses the allowance method to measure bad debts,________.
A)the Bad Debts Expense account is debited when an account is written off
B)the amount of bad debts expense is estimated at the end of the accounting period
C)the Allowance for Bad Debts account balance is added to the balance of the Accounts Receivable account to arrive at the net realizable value
D)the Allowance for Bad Debts account is debited when the bad debts expense is estimated

Question

Quizplus · Accepted Answer

When a company uses the allowance method to measure bad debts, the amount of bad debts expense is estimated at the end of the accounting period based on a percentage of the outstanding accounts receivable balance. The estimated amount is recorded as a debit to the Bad Debts Expense account and a credit to the Allowance for Bad Debts account. This method uses the allowance account to calculate the net realizable value of accounts receivable by subtracting the allowance for bad debts from the total accounts receivable balance. The Bad Debts Expense account is only debited when an account is actually written off as uncollectible.

When a Company Uses the Allowance Method to Measure Bad