The journal entry to record the estimate of uncollectible accounts includes:

Question

Quizplus · Accepted Answer

The estimate of uncollectible accounts is recorded by debiting Bad Debts Expense and crediting Allowance for Doubtful Accounts. This is because the estimate represents an expense to the company (as it reduces the amount of expected cash inflows) and it also reduces the value of Accounts Receivable (which is offset by the Allowance for Doubtful Accounts account). Option A is incorrect because Sales is not affected by the estimate of uncollectible accounts. Option B is incorrect because Accounts Receivable is not directly reduced by the estimate of uncollectible accounts. Option C is incorrect because the Allowance for Doubtful Accounts account is designed to absorb actual uncollectible accounts, not estimates.

The Journal Entry to Record the Estimate of Uncollectible Accounts