When a company uses the allowance method to measure bad debts,
________.
A.
the Allowance for Bad Debts account balance is added to the
balance of the Accounts Receivable account to arrive at the net
realizable value
B.
the amount of bad debts expense is estimated at the end of the
accounting period
C.
the Allowance for Bad Debts account is debited when the bad
debts expense is estimated
D.
the Bad Debts Expense account is debited when an account is
written off
Answer
When a company uses the
allowance method to measure bad debts, the amount of bad debts
expense is estimated at the end of the accounting period based on
the percentage of accounts receivable. Option(B) is
correct.
Option (A) is incorrect because in
the Allowance for Bad Debts account balance is deducted not added
to the balance of the Accounts Receivable account to arrive at the
net realizable value.
Option (C) is incorrect because in
allowance method, the Allowance for Bad Debts account is credited
when the bad debts expense is estimated and Bad debt account is
debited.
Option (D) is incorrect because at
the time of write off, Allowance for Bad Debts account is debited
and accounts receivable account is credited.
