If a company uses the allowance method to account for bad debts, when will the company's owners' equity decrease?
A) At the date a customer's account is written off
B) At the end of the accounting period when an adjusting entry for bad debts is recorded
C) At the date a customer's account is determined to be uncollectible
D) When the accounts receivable amount becomes past due

Question

Quizplus · Accepted Answer

The allowance method requires a periodic adjusting entry to record an estimate of the company's uncollectible accounts. This adjusting entry would decrease the balance of the allowance for doubtful accounts, which in turn would decrease the company's owners' equity. Therefore, the owners' equity would decrease at the end of the accounting period when an adjusting entry for bad debts is recorded.

If a Company Uses the Allowance Method to Account for Bad