The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be collected.To record the potential bad debts,The Grass is Greener Corporation would:

Question

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The Grass is Greener Corporation should use the allowance method to record potential bad debts. Under this method, the company estimates and records an allowance for doubtful accounts, which is a contra asset account to Accounts Receivable. Option A is incorrect because it only records a debit to Accounts Receivable and does not create an allowance account. Option B is incorrect because it records a debit to Allowance for Doubtful Accounts, which would decrease the allowance account, and a credit to Bad Debt Expense, which would increase expenses. Option D is incorrect because it would directly reduce Accounts Receivable without creating an allowance account. Therefore, option C is the best choice, as it increases the Bad Debt Expense account, which is an expense account in the income statement, and increases the Allowance for Doubtful Accounts account, which is a contra asset account.

The Grass Is Greener Corporation Provides $6,000 Worth of Lawn