[Biff-1955-Tannen]

I’m supposed to show what accounts will be debited and credited to adjust for the situation.

“At the end of Year 2, a major customer filed for bankruptcy.”

I said to Dr. Allowance for Doubtful Accounts, Cr. A/R

The solution says to Dr. Operating Expense, Cr. Allowance for Doubtful Accounts

Are we not actually writing off the account, and we’re just accounting for the expense and increasing the allowance for the possibility that we don’t collect?

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[ohiostategirlcpa]

You wrote off the account, the answer increases the allowance for doubtful accounts. Although they filed for bankruptcy, they could still pay off a portion of their AP, depending on priorities.

F91 A95 R90 B94
CMA since 2015
(Gleim books/PDFs, MCQs, SIMS)

[Biff-1955-Tannen]

Ok cool that's what I was thinking. Wanted to make sure

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[FIFOisbetterthanLIFO]

Kind of an odd question to be honest. You would definitely want to check your allowance to see if you were in line with your estimates. If you felt you needed to bump up the allowance due to the bankruptcy, then yes their answer would be correct. Ohio is right that even though they claimed bankruptcy it wouldn't necessarily mean you won't collect the balance owed on the account.

FAR - Passed (82)
BEC - Passed (76)
AUD - Passed (89)
REG - Passed! (81)
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