Abbot Safe & Lock The following information was obtained from the company's records for 2012:
$\begin{array}{l}
\text {Credit sales dwing the year } &\$ 3,200,000 \
\text { Accounts receivable-December 31, 2012 } &325,000 \
\text {Allowance for doubtful ac counts-December 31, 2012 } &35,000 \
\text {Bad debt expense for the year } &20,000
\end{array}$
-Refer to 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 2012:
$\begin{array}{l}
 \text {Credit sales dwing the year } &\$ 3,200,000 \
 \text { Accounts receivable-December 31, 2012 } &325,000 \
 \text {Allowance for doubtful ac counts-December 31, 2012 } &35,000 \
 \text {Bad debt expense for the year } &20,000
\end{array}$ 
-Refer to 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

The allowance method records an estimate for bad debt expense, which reduces the amount of accounts receivable reported on the balance sheet. Since accounts receivable is a liquid asset, reducing its value through the allowance method decreases liquidity.

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