Which Statement Concerning the Allowance for Doubtful Debts Account Is

question 4

Multiple Choice

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

• A) Allowance for doubtful debts normally has a credit balance.
• B) 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.
• C) Allowance for doubtful debts is a contra-asset account designed to reduce receivables to estimated realisable value.
• D) Allowance for doubtful debts represents cash set aside to cover losses incurred as a consequence of customers being declared bankrupt.

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Definitions:

Endowment

An investment fund established by a foundation that makes consistent withdrawals for charitable activities or to fund its operations, typically sourced from donations.

Interest Rate

The percentage of a loan amount charged by the lender to the borrower for the use of assets, typically expressed as an annual rate.

Consumes

The action of using up a good or service to satisfy needs or wants.

Consumption

The process by which goods and services are used up by consumers, representing the end phase of the economic cycle.