Richard LLC Accounts for Possible Bad Debts Using the Allowance

question 63

Multiple Choice

Richard LLC accounts for possible bad debts using the allowance method.When an actual bad debt occurs,what effect does it have on the accounting equation?

• A)Increases assets and increases stockholders' equity.
• B)Decreases assets and decreases stockholders' equity.
• C)Decreases assets and decreases liabilities.
• D)No effect on the accounting equation.

Comprehend the concepts of liabilities and assets and their impact on the financial statements when transactions occur.

Recognize the correct treatment of prepaid expenses and unearned revenues in accounting entries.

Understand the impact of cash and accrual transactions on the financial statements.

Know the differentiation between the cash basis and accrual basis of accounting, including the implications for financial reporting.

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Definitions:

Consent

The voluntary agreement to or approval of what is done or proposed by another; especially important in legal and medical contexts.

Generally Enforceable

Describes a legal agreement or contract that is valid and capable of being executed or acted upon under the law.

Subletting

The act of renting out a leased property by the original tenant to a third party for a subset of the lease period.

Assign the Lease

The process of transferring all or part of the rights and obligations of an existing lease from the original tenant to another party.