Question

Under the allowance method, a.bad debt expense is recorded when specific customer accounts are determined to be uncollectible. b.the allowance account and estimates are used. c.the allowance account is used, but estimates are not. d.primary users are small companies with few receivables.

Answer 1

Answer:

B) the allowance account and estimates are used.

Explanation:

When a company uses the allowance method, it will record an adjusting entry for the losses it anticipates from bad credits given to customers. The bad debts expense account is debited and the allowance for doubtful accounts (contra asset) is credited. Then as time passes and the amount of bad debts is  exactly determined, another adjusting entry is necessary depending whether the estimate was correct or not, or if it was under or over estimated.