Asked by Erica Doherty on Jun 01, 2024
Verified
Under the allowance method of accounting for uncollectible accounts
A) the cash realizable value of accounts receivable is greater before an account is written off than after it is written off.
B) Bad Debt Expense is debited when a specific account is written off as uncollectible.
C) the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.
D) Allowance for Doubtful Accounts is closed each year to Income Summary.
Cash Realizable Value
The amount of money that can be expected to be received from receivables or other assets, after accounting for any discounts or allowances.
Allowance Method
An accounting technique that estimates and deducts accounts receivable deemed uncollectible from total accounts receivable.
- Comprehend the variance between the allowance approach and the direct write-off approach in managing uncollectible accounts within accounting.
Verified Answer
ZK
Zybrea KnightJun 03, 2024
Final Answer :
C
Explanation :
The allowance method involves estimating uncollectible accounts at the end of each period, which affects the balance of the Allowance for Doubtful Accounts. When an account is actually written off, it does not affect the cash realizable value of accounts receivable because the estimated uncollectible amount has already been accounted for. This keeps the cash realizable value the same before and after the write-off.
Learning Objectives
- Comprehend the variance between the allowance approach and the direct write-off approach in managing uncollectible accounts within accounting.
Related questions
Under the Direct Write-Off Method of Accounting for Uncollectible Accounts ...
The Direct Write-Off Method of Accounting for Bad Debts Records ...
The Advantage of the Allowance Method of Accounting for Bad ...
A Company Has $80,000 in Outstanding Accounts Receivable and It ...
The Allowance Method Estimates Bad Debts Expense at the End ...