Glowra Company uses the allowance method of accounting for debt debts expense. At the beginning of the current year, the Allowance for Doubtful Accounts had a credit balance of $5,000 and the Accounts Receivable had a debit balance of $20,000. In the current year, an amount of $200 is determined to be uncollectible, and is recorded in the books correctly. Which of the following statements is true of the accounting treatment of the bad debts expense?
A) The balances of Accounts Receivable and Allowance for Doubtful Accounts increase by $200.
B) Adjusting entries for accounting the bad debts expense are made directly into the Bad Debts Expense account.
C) The balances of Accounts Receivable and Allowance for Doubtful Accounts decrease by $200.
D) No adjusting entries are made, and the bad debts expense is charged directly to the net profit account.

Question

Glowra Company uses the allowance method of accounting for debt debts expense. At the beginning of the current year, the Allowance for Doubtful Accounts had a credit balance of $5,000 and the Accounts Receivable had a debit balance of $20,000. In the current year, an amount of $200 is determined to be uncollectible, and is recorded in the books correctly. Which of the following statements is true of the accounting treatment of the bad debts expense? ​
A) The balances of Accounts Receivable and Allowance for Doubtful Accounts increase by $200.
B) Adjusting entries for accounting the bad debts expense are made directly into the Bad Debts Expense account.
C) The balances of Accounts Receivable and Allowance for Doubtful Accounts decrease by $200.
D) No adjusting entries are made, and the bad debts expense is charged directly to the net profit account.

Quizplus · Accepted Answer

When an amount is determined to be uncollectible, it is written off by decreasing (crediting) Accounts Receivable and decreasing (debiting) Allowance for Doubtful Accounts by the uncollectible amount, which is $200 in this case.

Glowra Company Uses the Allowance Method of Accounting for Debt