A Company Has $90,000 in Outstanding Accounts Receivable and It

question 197

Multiple Choice

A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible.
- The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

• A) $3,632
• B) $3,568
• C) $3,600
• D) $4,400
• E) $2,800

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Definitions:

Transactions Balance

The amount of money held to facilitate day-to-day financial transactions, reflecting the liquidity needed for regular expenditures.

Loan Requirement

A set of criteria established by lenders that a borrower must meet to qualify for a loan.

Accruals

The accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.

Working Capital

Current assets minus current liabilities, indicating the short-term liquidity of a company and its ability to pay off its obligations.