Countryside 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,Countryside Corporation would debit:

Question

Quizplus · Accepted Answer

When a company expects that a certain portion of its accounts receivable will not be collected, it must record an allowance for doubtful accounts, which is a contra-asset account that reduces the amount of accounts receivable that are expected to be collected. This allowance is created by debiting the Bad Debt Expense account and crediting the Allowance for Doubtful Accounts account.

Option A is incorrect because it would increase the balance of accounts receivable rather than reducing it through the establishment of an allowance.

Option B is incorrect because Bad Debt Expense should be debited, not credited. Additionally, Bad Debt Expense is an expense account, whereas the Allowance for Doubtful Accounts is a contra-asset account.

Option D is incorrect because it would reduce the balance of accounts receivable, rather than creating an allowance for doubtful accounts.

Countryside Corporation Provides $6,000 Worth of Lawn Care on Account