Town and Country Saddle Learns the Account Receivable for a Customer

question 30

Multiple Choice

Town and Country Saddle learns the account receivable for a customer is uncollectible. The journal entry under the allowance method to write off an account is to:

• A) debit Allowance for Doubtful Accounts; credit Bad Debts Expense.
• B) debit Sales; credit Allowance for Doubtful Accounts.
• C) debit Bad Debts Expense; credit Accounts Receivable.
• D) debit Allowance for Doubtful Accounts; credit Accounts Receivable.

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overheads that are incurred in turning raw materials into finished products.

Manufacturing Overhead

Indirect factory-related costs that are incurred when producing a product, such as utilities, maintenance, and quality control.

Indirect Materials

Materials used in the production process that cannot be directly linked to a specific product, such as lubricants and cleaning supplies used in a factory.

FIFO Method

An inventory valuation method where the first items placed in inventory are the first ones sold or used out; FIFO stands for “First In, First Out”.