You Have Just Received Notice That a Customer of Yours

question 44

Multiple Choice

You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments.Assuming you use the allowance method, the entry you make is to

• A)debit Allowance for Doubtful Accounts and credit Bad Debt Expense.
• B)debit Allowance for Doubtful Accounts and credit Accounts Receivable.
• C)debit Bad Debt Expense and credit Allowance for Doubtful Accounts.
• D)debit Bad Debt Expense and credit Accounts Receivable.

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Definitions:

Net Operating Income

The profit realized from a business's operations after subtracting operating expenses from operating revenues.

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Variable Costing

A costing approach where only the variable costs involved in production—such as raw materials, direct labor, and variable manufacturing expenses—are included in the cost of goods sold, leaving out fixed manufacturing overheads.

Contribution Margin

The amount by which the sales of a product exceed its variable costs, representing the portion of sales revenue that contributes to covering fixed costs and generating profit.