Using the allowance method for bad debts, the end of the period adjusting entry for estimated bad debts is: Multiple Choice Debit Bad Debts Expense and credit Accounts Receivable. Debit Allowance for Doubtful Accounts and credit Accounts Receivable. Debit Accounts Receivable and credit Allowance for Doubtful Accounts. Debit Allowance for Doubtful Accounts and credit Bad Debts Expense. Debit Bad Debts Expense and credit Allowance for Doubtful Accounts.

Debit Allowance for Doubtful Accounts and Credit Accounts Receivable

Explanation:

An Allowance for Doubtful Account is created to adjust for an estimated bad debit.

The allowance method provides account for an amount that is not likely to be recovered from a debt.

Debit leg

The Allowance for Doubtful Account is an expense in the profit and loss account. When it is created or adjusted upwards it increases the expenses. And Expenses increase on the debit.

Credit leg

When an amount is not likely to be recovered from a Debtor (Account Receivable). The Asset or economic benefits in that Debtor decreases. Assets decrease on the credit.

Hence the Increase (debit) in the expense item - Allowance for Doubtful Account and a Decrease (credit) in asset item - Account Receivable

Debit Bad Debts Expense and credit Allowance for Doubtful Accounts.

Explanation:

The adjusting entry for the bad debt expense account when using the allowance method is:

Dr Bad debt expense

Cr Allowance for Doubtful Accounts

Expense accounts all have a debit balance, so at the end of the year you must debit the account in order to record the expense. The allowance for uncollectible accounts is a contra asset account that has a credit balance.