Question

Which of the following reflects the effect of the year-end adjusting entry to record estimated uncollectible accounts expense using the allowance method? Balance Sheet Income Statement Statement of Cash Flows Assets = Liabilities + Stockholders' Equity Revenue Expense = Net Income A. − = n/a − n/a − − − OA B. n/a = − − n/a + − n/a C. n/a = − − n/a + − − OA D. − = n/a − n/a + − n/a

Answer 1

It is only option D.  − = n/a − n/a + − n/a that reflects the effect of the year-end adjusting entry for Uncollectible Accounts Expense when the allowance method is used.

The entry reduces Accounts Receivable (Assets) through its contra account (the Allowance for Uncollectible Accounts).

It does not affect the liabilities.  It reduces Equity because it is an expense that reduces Retained Earnings.

The entry does not affect the Revenue but increases Expenses, which reduce the Net Income.

It is not a cash flow item and does not affect the Statement of Cash Flows.

Data and Options:

                                           Balance Sheet  Income Statement  Statement of

                                                                                                        Cash Flows

Assets = Liabilities + Stockholders' Equity  Revenue Expense = Net Income

A.  −     =      n/a             −                                    n/a           −             −       − OA

B.  n/a  =       −               −                                    n/a           +             −         n/a

C. n/a   =       −               −                                    n/a           +             −       − OA

D. −      =      n/a             −                                    n/a           +             −       n/a

The estimated Uncollectible Accounts Expense is Bad Debt Expense.  

When this year-end adjusting entry is recorded, the financial statements affected are only the Income Statement (expenses) and the Balance Sheet (equity).

Thus, the only correct reflection of the adjustment is option D.

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