Gowns, Inc.uses the percentage of receivables basis to estimate its bad debts.At December 31, 2011, Gowns estimates total bad debts that will become uncollectible in the future as €4,456.The existing balance in the Allowance for Doubtful Accounts is a credit balance of €1,056.The Accounts Receivable balance at December 31, 2011 is €79,200.The amount of the bad debt adjusting entry at December 31, 2011 will impact the statement of financial position accounts by

Question

Quizplus · Accepted Answer

The bad debt adjusting entry will increase the balance in the Allowance for Doubtful Accounts to reflect the estimated future bad debt expense. To determine the amount of the increase, we need to subtract the existing credit balance in the account from the estimated total bad debts, which is €4,456 - €1,056 = €3,400. This means that the entry will increase the balance in the Allowance for Doubtful Accounts by €3,400, which reduces the net amount of Accounts Receivable on the balance sheet. Therefore, the correct answer is to increase the Allowance for Doubtful Accounts by €3,400 (option D).