Question

Establishing an Allowance for Doubtful Accounts under the allowance method is necessary because a. uncollectible accounts that are written off must be accumulated in a separate account. b. collection agencies use this account to accumulate attempts to collect worthless balances. c. estimates must be made when recording bad debt expense and it is not possible to know which specific accounts will not be collected. d. a liability results when a credit sale is made.

Answer 1

Answer: Establishing an Allowance for Doubtful Accounts under the allowance method is necessary because estimates must be made when recording bad debt expense and it is not possible to know which specific accounts will not be collected.

Allowance for doubtful accounts is a diminution of accounts receivable and is recorded as a write-off straightaway beneath accounts receivable that is appearing on a organization balance sheet.