The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month.Experience suggests that about 2% of net credit sales will not be paid.To record the potential bad debts,The Grass is Greener Corporation would:

Question

Quizplus · Accepted Answer

The best choice in this scenario is to debit the Bad Debt Expense account and credit the Allowance for Doubtful Accounts account for $120. This is because the company is estimating that 2% of their net credit sales will not be paid, which is a provision for potential bad debts. The Allowance for Doubtful Accounts is used to reflect this estimate and reduce the Accounts Receivable account to a more realistic amount that is expected to be collected. Therefore, the entry would be:

Debit Bad Debt Expense $120 
Credit Allowance for Doubtful Accounts $120

The Grass Is Greener Corporation Provides $6,000 Worth of Lawn