Question
22. Georgia Company uses the allowance method of accounting for bad debts. Georgia estimates that uncollectibles for the year will be 4% of accounts receivable.
22. Georgia Company uses the allowance method of accounting for bad debts. Georgia estimates that uncollectibles for the year will be 4% of accounts receivable. Total accounts receivable for the year are $100,000. The prior-period balance of the Allowance for Doubtful Accounts account is $0. Georgia determines it cannot collect $600 from Gwinnett a credit customer. What is the journal entry to record the uncollectible amount on the books of Georgia?
A. Debit Bad Debt Expense $600; Credit Accounts Receivable $600.
B. Debit Bad Debt Expense $400; Credit Accounts Receivable $400.
C. Debit Allowance for Doubtful Accounts $600; Credit Accounts Receivable $600.
D. Debit Bad Debt Expense $4,000; Credit Allowance for Doubtful Accounts $4,000.
I know the answer is C. But can you explain why? Thank you
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