The Grass is Greener Corporation uses the allowance method and learns that a customer who owes $350 has gone bankrupt and payment will not be made.The Grass is Greener Corporation should:
A)debit Bad Debt Expense and credit Accounts Receivable for $350.
B)debit the Allowance for Doubtful Accounts and credit Accounts Receivable for $350.
C)debit Bad Debt Expense and credit Cash for $350.
D)debit Accounts Receivable and credit Bad Debt Expense for $350.

Question

Quizplus · Accepted Answer

The allowance method requires an estimation of the amount of uncollectible accounts and the creation of an allowance account to offset the Accounts Receivable balance. When a specific customer account is deemed uncollectible, the entry is to debit the Allowance for Doubtful Accounts and credit Accounts Receivable for the amount that is unlikely to be collected. Therefore, option B is the correct choice as it follows the correct accounting treatment under the allowance method. Option A is incorrect as Bad Debt Expense is not debited for the specific account, but rather for the estimated amount overall. Option C is incorrect as cash has not been received from the customer. Option D is incorrect as it is reversed the account and the expense.

The Grass Is Greener Corporation Uses the Allowance Method and Learns