
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:**Title: Understanding the Impact of Year-End Adjustments on Financial Statements**
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The following exercise is designed to help you understand how year-end adjustments for estimated uncollectible accounts expenses affect financial statements using the allowance method.
**Question:**
Which of the following reflects the effect of the year-end adjustment to record estimated uncollectible accounts expense using the allowance method?
**Table: Balance Sheet and Income Statement Analysis**
| Option | Balance Sheet | | Income Statement | | | Statement of Cash Flows |
|--------|------------------------------|-----------------------------|---------------------------|----|----|-------------------------|
| | Assets | = Liabilities + Stockholders’ Equity | Revenue − Expense = Net Income | | | |
| A. | \- | NA | \- | NA | \- | \-OA |
| B. | NA | \- | NA | + | \- | NA |
| C. | NA | \- | NA | + | \- | \-OA |
| D. | \- | NA | \- | + | \- | NA |
**Explanation:**
- **NA** indicates no effect.
- **+** indicates an increase.
- **-** indicates a decrease.
- **\*OA** denotes operating activities.
**Multiple Choice Options:**
- Option A
- Option B
- Option C
- Option D
Choose the correct option that accurately represents the accounting treatment of the adjustment. Consider how the allowance method impacts assets, liabilities, equity, revenue, expenses, net income, and cash flows.
This type of analysis is crucial for understanding the complexities involved in financial reporting and the implications of accounting standards on a company’s financial position and performance.
Expert Solution

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Step 1
Solution:
The journal entry to record year end adjustment for uncollectible account expense is:
1. Debit to Bad debt expense
2. Credit to allowance for doubtful accounts
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