PRC-1 · Chapter 5 · Question 7 of 100
If an entity determines that its required closing allowance for doubtful debts is lower than its opening balance, what is the journal entry to record this DECREASE?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Debit Allowance for Doubtful Debts, Credit Bad Debt Expense
Explanation
A decrease in the required allowance means the previous estimate was too pessimistic. The entry reduces the allowance (Debit) and credits the Bad Debt Expense account, effectively increasing net profit for the year.
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