Manley operates a law practice on the accrual method and calendar year. At the beginning of the year, Manley's firm had an allowance for doubtful accounts with a balance of $16,000. At the end of the year, Manley recorded bad debt expense of $22,800 and the balance of doubtful accounts had increased to $18,200. What is Manley's deduction for bad debt expense this year?
A)$22,800
B)$2,200
C)$25,000
D)$4,600
E)$20,600

Question

Quizplus · Accepted Answer

Manley's deduction for bad debt expense is the increase in the allowance for doubtful accounts, which is $2,200 ($18,200 - $16,000). However, the bad debt expense recorded during the year must also be taken into account. Since the firm operates on the accrual method, the bad debt expense recorded this year represents debts incurred in previous years that were written off this year. Therefore, the total deduction for bad debt expense this year is the increase in the allowance plus the bad debt expense recorded, or $20,600 ($2,200 + $22,800).

Manley Operates a Law Practice on the Accrual Method and Calendar