The following data are from the company's records for the year ended December 31:

-Refer to A2Z Events. What are the effects on the accounting equation when the company makes the adjustment to record bad debt expense using the allowance method?

Question

The following data are from the company's records for the year ended December 31:
 
-Refer to A2Z Events. What are the effects on the accounting equation when the company makes the adjustment to record bad debt expense using the allowance method?

Quizplus · Accepted Answer

When recording bad debt expense using the allowance method, the company increases its bad debt expense (which reduces net income and thus stockholders' equity) and increases its allowance for doubtful accounts (a contra-asset account, which reduces total assets). This results in both assets and stockholders' equity decreasing.

The Following Data Are from the Company's Records for the Year