PRC-1 · Chapter 5 · Question 82 of 100
If a business decides that a general allowance for doubtful debts is no longer required due to changing to a strict 'cash-only' business model, what is the accounting entry to eliminate the existing allowance?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Debit Allowance for Doubtful Debts; Credit Bad Debt Expense (or Income)
Explanation
To eliminate the allowance (a credit balance), you must debit the Allowance account and credit the expense/income account to reverse the previously recognized provision, increasing current profit.
More Bad and Doubtful Debts MCQs
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