The data presented below are for Falconi,Inc.for 2017.
$\begin{array}{lr}
\text { Credit sales during the year } & \$ 2,100,000 \
\text { Accounts receivable-December } 31,2017 & 295,000 \
\text { Allowance for doubtful accounts-December } 31,2017 & 28,000 \
\text { Bad debts expense for the year } & 17,000
\end{array}$

-What is the effect on net accounts receivable when Falconi records its estimate for bad debts expense using the allowance method?
A)Net accounts receivable decrease.
B)Net accounts receivable increase.
C)Net accounts receivable stay the same.
D)Net accounts receivable both increase and decrease.

Question

The data presented below are for Falconi,Inc.for 2017. 
$\begin{array}{lr}
\text { Credit sales during the year } & \$ 2,100,000 \
\text { Accounts receivable-December } 31,2017 & 295,000 \
\text { Allowance for doubtful accounts-December } 31,2017 & 28,000 \
\text { Bad debts expense for the year } & 17,000
\end{array}$
 
-What is the effect on net accounts receivable when Falconi records its estimate for bad debts expense using the allowance method?
A)Net accounts receivable decrease.
B)Net accounts receivable increase.
C)Net accounts receivable stay the same.
D)Net accounts receivable both increase and decrease.

Quizplus · Accepted Answer

When Falconi records its estimate for bad debts expense using the allowance method, it reduces the net accounts receivable amount. This is because the allowance method recognizes that some customers may not pay their outstanding debts, and therefore, Falconi needs to adjust its accounts receivables accordingly by estimating the amount of the bad debts. This adjustment reduces the accounts receivable, resulting in a decrease in the net accounts receivable.

The Data Presented Below Are for Falconi,Inc -What Is the Effect on Net Accounts Receivable When Falconi