Which statement is correct about recording an allowance for doubtful accounts?

Question

Quizplus · Accepted Answer

Recording an allowance for doubtful accounts requires the estimation of uncollectible amounts. This allowance is a contra asset account, which means it is deducted from the total accounts receivable to calculate the net accounts receivable. Therefore, any changes in the allowance for doubtful accounts will affect the calculation of the net accounts receivable. Option A is incorrect because accounts receivable are adjusted when an allowance for doubtful accounts is recorded. Option C is true, but it is not the main reason for recording an allowance for doubtful accounts. Finally, option D is incorrect because estimating the uncollectible amounts requires making judgments and assumptions.

Which Statement Is Correct About Recording an Allowance for Doubtful