Question

Thomas Company receives information that requires the company to increase its expectations of uncollectible accounts receivable. Which of the following does not occur on the company’s financial statements? Select one:
A. Bad debt expense is increased
B. Accounts receivables (gross) is reduced
C. Net income is reduced
D. The allowance account is increased
E. None of the above

Answer 1

Answer:

A. Bad Debt expenses is increased

Explanation:

The answer above won't occur because under the allowance method, if a customer's receivables is flagged as uncollectible, it is usually written off by deducting the amount from the total receivables. This entry to write off a bad debt will only have effects on the statement of financial position. The entries will be:

Debit: Allowance for doubtful debts account

Credit: Total receivables

No loss will be reported in the income statement because we have previously made a provision for it in bad debts.