A Debit Balance In The Allowance For Doubtful Accounts Shows | MCQ Answer

A Debit Balance In The Allowance For Doubtful Accounts indicates that the Actual Bad Debts Written Off are more than the previous allowance for doubtful accounts or doubtful debts or we estimate less uncollectible accounts expense than actual one under allowance method. So, the correct answer of this multiple choice question (mcq) is (b).

So, a debit balance of Allowance For Doubtful Accounts occurs when we estimate that a percentage of account receivable or sales will not be received / collected from customers in future is less than the actual amount of bad debts which is to be written off and as a result accounts receivable's balance decreased on balance sheet.

The effect of debit balance of allowance for doubtful accounts on Income Statement is that Net Income is overstated as less amount of uncollectible accounts expense is charged while asset side shows more balance as less amount of AFDA is deducted from accounts receivable on balance sheet but liabilities & equity side shows less balance on balance sheet.