Which Statement Concerning the Allowance for Doubtful Debts Account Is

question 17

Multiple Choice

Which statement concerning the allowance for doubtful debts account is not true?

• A) Allowance for doubtful debts is used to adjust receivables for estimated bad debts because individual debtor's balances cannot be removed from the ledger unless there is indisputable evidence they are bad.
• B) Allowance for doubtful debts is a contra-asset account designed to reduce receivables to estimated realisable value.
• C) Allowance for doubtful debts represents cash set aside to cover losses incurred as a consequence of customers being declared bankrupt.
• D) Allowance for doubtful debts normally has a credit balance.

---

Definitions:

Disposable Personal Income

Funds available to families for saving or spending after subtracting income taxes.

Retained Earnings

The portion of net income that is kept by a company rather than distributed to its shareholders as dividends, used for investment or paying off debt.

Social Insurance Contributions

Payments made to social security systems by employers, employees, or the self-employed, used to fund public programs such as pensions, unemployment benefits, and health care.

Transfer Payment

Payments made by the government to individuals for which no good or service is provided in return, such as welfare benefits.