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Accounting for Bad Debt

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Questions and Answers

When is the entry made for bad debt loss?

Before the accounting period
Only at the end of the period
During the accounting period or at the end of the period (correct)
Only during the accounting period

What is the effect on Accounts Receivable in the Balance Sheet?

Accounts Receivable becomes zero
Decrease in Accounts Receivable (correct)
No effect on Accounts Receivable
Increase in Accounts Receivable

What is the journal entry to write off a bad debt?

Debit Allowance for Doubtful Accounts, Credit Accounts Receivable
Debit Bad Debt Expense, Credit Accounts Receivable
Debit Accounts Receivable, Credit Bad Debt Expense
Debit Accounts Receivable, Credit Allowance for Doubtful Accounts (correct)

What happens when a bad debt is recovered?

Retained earnings increases on the balance sheet (A) Signup and view all the answers

What is the purpose of the Allowance for Doubtful Accounts?

To estimate uncollectible accounts (D) Signup and view all the answers

How is bad debt recovered shown in the financial statements?

As a separate item of revenue on the income statement (D) Signup and view all the answers

What does it mean when an account receivable is recovered after being written off?

It is evidence that the initial write-off was an error and the asset should be reinstated. (D) Signup and view all the answers

What is the correct journal entry to reverse a written-off account receivable?

Debit AUA; Credit A/R, XYZ (B) Signup and view all the answers

How would you record the death loss of a cow worth PhP 10,000?

Debit Death Loss; Credit Dairy Herd Inventory (D) Signup and view all the answers

What is the correct accounting treatment for an in-kind donation worth PhP 10,000?

Debit Fertilizer Supply; Credit Income from Grants/In-kind Donations (D) Signup and view all the answers

What type of unusual loss is the death of a cow worth PhP 10,000?

Death Loss (C) Signup and view all the answers

What is the purpose of accounting for in-kind donations?

To recognize the donations received from donors. (D) Signup and view all the answers

What happens when goods or services are sold on credit?

Some of the accounts receivable may be uncollectible (C) Signup and view all the answers

What is the purpose of the direct write-off method?

To eliminate uncollectible accounts from the records (A) Signup and view all the answers

What is the accounting entry for writing off a bad debt using the direct write-off method?

Debit Bad Debt Expense, Credit Accounts Receivable (D) Signup and view all the answers

Why is the allowance method used in accounting for bad debts?

To estimate the amount of uncollectible accounts (D) Signup and view all the answers

What is a risk management strategy in accounting for bad debts?

Estimating the allowance for bad debts (D) Signup and view all the answers

What is a compliance requirement in accounting for bad debts?

Recognizing bad debt expenses in financial reporting (D) Signup and view all the answers

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