Ace Computing Company On January 1,2012,the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $40,000 and $1,500 respectively.During the year,the company reported $80,000 of credit sales.There were $500 of receivables written off as uncollected in 2012.Cash collections of receivables amounted to $78,200.The company estimates that it will be unable to collect 4% of the year-end accounts receivable balance.
-Refer to the Ace Computing Company.The entry required to recognize the bad debts expense for 2012 will act to:

Question

Quizplus · Accepted Answer

The entry to recognize the bad debts will involve increasing the allowance for doubtful accounts, which is a contra-asset account that reduces the balance of accounts receivable. Therefore, total assets will decrease. At the same time, bad debts expense will be recognized as an expense on the income statement, which will reduce net income and retained earnings.

Ace Computing Company on January 1,2012,the Accounts Receivable and the Allowance