Question

a company uses the allowance method for accounting for bad debt expense. when the company determines that a customer will not pay their balance, what is the journal entry they make?
debit bad debt expense; credit accounts receivable.
debit allowance for doubtful accounts; credit bad debt expense.
debit allowance for doubtful accounts; credit accounts receivable.
debit bad debt expense and credit allowance for doubtful accounts.

Explanation:

When using the allowance method, when a specific customer's account is determined uncollectible (bad - debt), the allowance for doubtful accounts (a contra - asset account) is debited (to reduce the allowance balance as we are writing off a specific account), and accounts receivable (an asset account) is credited (to remove the specific customer's balance from accounts receivable).

• Option A: Debiting Bad Debt Expense is incorrect at the time of write - off. Bad Debt Expense is debited when estimating bad debts, not when writing off a specific account.
• Option B: The relationship between Allowance for Doubtful Accounts and Bad Debt Expense is reversed. Bad Debt Expense is not credited when writing off an account.
• Option D: This is the entry for estimating bad debts (recording bad debt expense), not for writing off a specific uncollectible account.

Answer:

C. Debit Allowance for Doubtful Accounts; credit Accounts Receivable.