Question

Thomas Company receives information that requires the company to increase its expectations of uncollectible accounts receivable....

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? 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

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Answer #1

The correct option is “B” accounts receivable gross is reduced.

A company would record the following journal entry when it receives information related to uncollectible receivables under allowance method.

Date

Account Title and Explanation

Debit

Credit

Bad debt expense

xxxx

                          Allowance for doubtful accounts

xxxx

To record allowance for uncollectible accounts

As a result of the above entry, net income and accounts receivable balances are decreased due to increased bad debt expense and allowance for doubtful accounts but gross receivables would remain unchanged.

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