A debit balance in the allowance for doubtful accounts Answer

A debit balance in the Allowance for Doubtful Accounts:

  • indicates that actual bad debt write-offs have exceeded previous provisions for bad debts
  • is the normal balance for that account.
  • cannot occur if the percentage of receivables method of estimating bad debts is used.
  • indicates that actual bad debt write-offs have been less than what was estimated.

Answer

Debit balance in allowance for doubtful debts account

  • Is the indication of that actual bad debts written offs have exceeded previous provisions for bad debts, because if such thing happened then only this account shows debit balance,
  • This account has credit balance in normal cases hence this option is not right.
  • There is no 100% probability that if someone follows percentage of receivables method for estimating bad debts then allowance for doubtful debts will have debit balance, it can be debit or credit by following this method.
  • If actual bad debts write offs have become less then the estimation then allowance for doubtful debts accounts shows a credit balance.

Hence it can be concluded that option (a) is the right option.

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