Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts
A) Liabilities decrease.
B) Net Income is unchanged.
C) Total Assets are unchanged.
D) Total Assets decrease.

Question

Quizplus · Accepted Answer

The allowance method involves creating a contra-asset account to estimate uncollectible accounts. When a year-end adjustment is made to increase the allowance for doubtful accounts (i.e. estimated uncollectible accounts), the amount of the allowance account increases, which in turn decreases the net accounts receivable (total assets) on the balance sheet. Therefore, the correct answer is D - total assets decrease.

Under the Allowance Method, When a Year-End Adjustment Is Made