Abbot Safe & Lock
The following information was obtained from the company's records for Year 1:
$\begin{array}{lr}
\text { Credit sales during the year } & \$ 3,200,000 \
\text { Accounts receivable-December 31, Year 1 } & 325,000 \
\text { Allowance for doubtful accounts-December 31, Year 1 } & 35,000 \
\text { Bad debt expense for the year } & 20,000
\end{array}$

-Refer to the figure Abbot Safe & Lock.What is the effect on liquidity when the company records its estimate for bad debt expense using the allowance method?

Question

Abbot Safe & Lock
The following information was obtained from the company's records for Year 1:
$\begin{array}{lr}
\text { Credit sales during the year } & \$ 3,200,000 \
\text { Accounts receivable-December 31, Year 1 } & 325,000 \
\text { Allowance for doubtful accounts-December 31, Year 1 } & 35,000 \
\text { Bad debt expense for the year } & 20,000
\end{array}$
 
-Refer to the figure Abbot Safe & Lock.What is the effect on liquidity when the company records its estimate for bad debt expense using the allowance method?

Quizplus · Accepted Answer

When the company records its estimate for bad debt expense using the allowance method, it sets aside a portion of its current assets as a reserve for potentially uncollectible receivables. This reduces the amount of current assets available for use in the short term, thereby reducing liquidity.

Abbot Safe & Lock the Following Information Was Obtained from the Company's

Abbot Safe & Lock
the Following Information Was Obtained from the Company's