Question

The adjusting entry to record the allowance for doubtful accounts causes total ______. (Check all that apply.)

Answer 1

The adjusting entry for the allowance for doubtful accounts decreases total assets and increases bad debt expense. It involves a debit to bad debt expense and a credit to the allowance for doubtful accounts, a contra-asset account.

Step-by-step explanation:

The adjusting entry to record the allowance for doubtful accounts typically causes total assets to decrease on the balance sheet. This entry also affects the income statement by increasing the bad debt expense. When recording this adjusting entry, a debit is made to bad debt expense, reflecting an anticipated future loss due to customers' non-payment, and a credit is made to the allowance for doubtful accounts, which is a contra-asset account that reduces total accounts receivable.

Answer 2

The adjusting entry for the allowance for doubtful accounts reduces total assets and increases total expenses, as it accounts for estimated uncollectible receivables through the allowance method.

Step-by-step explanation:

The adjusting entry to record the allowance for doubtful accounts causes total assets to decrease and total expenses to increase if using the allowance method. When a company provides goods or services on credit, it records the revenue and the corresponding accounts receivable. Over time, some of these receivables may become uncollectible, leading to the need to estimate and record an expense for doubtful accounts. This adjusting entry is made by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts, which is a contra-asset account that reduces the total accounts receivable on the balance sheet. As a result, the entry does not immediately affect cash; it establishes an allowance to anticipate future losses from uncollectible accounts.