Ace Computing Company
On January 1, the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $40,000 and $1,500 respectively. During the year, the company reported $80,000 of credit sales. There were $500 of receivables written off as uncollected during the year. Cash collections of receivables amounted to $78,200. The company estimates that it will be unable to collect 4% of the year-end accounts receivable balance.
-Refer to the Ace Computing Company. The entry required to recognize the bad debts expense will act to

Question

Quizplus · Accepted Answer

Recognizing bad debts expense means reducing the amount of accounts receivable and increasing the allowance for doubtful accounts, which will decrease total assets and retained earnings. There is no impact on net income since bad debts expense is a non-operating expense and is reported below the operating income line on the income statement.

Ace Computing Company on January 1, the Accounts Receivable and the Allowance for the Allowance