If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the ______.Multiple choice question.accountant must have made an error because the Allowance account should have a $0 balance just like the Bad Debt ExpenseBad Debt Expense on the income statement will be greater than the Allowance for Doubtful Accounts on the balance sheetamounts actually written off were greater than the estimated amount of uncollectiblesestimated amount of uncollectibles was greater than the amounts actually written off
Question
If the Allowance for Doubtful Accounts has a credit balance prior to recording the adjusting entry for the current period's uncollectible accounts, then the ______.Multiple choice question.accountant must have made an error because the Allowance account should have a $0 balance just like the Bad Debt ExpenseBad Debt Expense on the income statement will be greater than the Allowance for Doubtful Accounts on the balance sheetamounts actually written off were greater than the estimated amount of uncollectiblesestimated amount of uncollectibles was greater than the amounts actually written off
Solution
The correct answer is "estimated amount of uncollectibles was greater than the amounts actually written off".
Here's why:
The Allowance for Doubtful Accounts is a contra asset account that is used to estimate the portion of the accounts receivable that may not be collectible. It is normal for this account to have a credit balance because it is offset against the total Accounts Receivable to show the net realizable value.
If the Allowance for Doubtful Accounts has a credit balance before recording the adjusting entry for the current period's uncollectible accounts, it means that the previous estimates of uncollectible accounts were greater than the amounts that were actually written off.
In other words, the company overestimated the amount of bad debt in the previous period. The credit balance is carried forward to the next period and will be adjusted based on the new estimate of uncollectible accounts.
So, the statement "estimated amount of uncollectibles was greater than the amounts actually written off" is correct.
Similar Questions
Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.Multiple choice question.$100 greater thanthe same as$100 less than
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The allowance for doubtful accounts is a contra asset account that equals:Multiple choice question.total short-term assetstotal accounts receivabletotal uncollectible accounts
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