Which of the following statements about methods of accounting for bad debts is correct?
A)When the allowance method is used,the journal entry to write-off an uncollectible account does not change the amount reported as Accounts Receivable,Net on the balance sheet.
B)The two methods of accounting for bad debts that are acceptable under GAAP are the allowance method and the direct write-off method.
C)When the allowance method is used,Bad Debt Expense is equal to the write-offs that occurred during the period.
D)When the allowance method is used,if actual results differ from the estimates,the prior year financial statements must be corrected.

Question

Quizplus · Accepted Answer

When the allowance method is used,the entry to record a write-off includes a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.The decrease in Accounts Receivable is offset by the decrease in the Allowance for Doubtful Accounts.As a result,the amount reported as Accounts Receivable,Net on the balance sheet does not change.
Only the allowance method of accounting for bad debts is acceptable under GAAP.When the direct write-off method is used,Bad Debt Expense is equal to the write-offs that occurred during the period.To ensure bad debts and the allowance for doubtful accounts do not become materially misstated over time,companies revise overestimates of prior periods by lowering estimates in the current period,or they raise estimates in the current period to correct underestimates of prior periods.

Which of the Following Statements About Methods of Accounting for Bad