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Under the allowance method, when is the Irrecoverable debts expense account used?
AEach time an individual customer account is written off
BWhenever cash is received from a credit customer
COnly when a written-off account is later reinstated
DOnly in the annual adjusting entry that sets up the estimate
Answer & Solution
Correct answer: D. Only in the annual adjusting entry that sets up the estimate
1. Under the allowance method the expense is recorded once, in the annual adjusting entry.
2. Individual write-offs debit the allowance, not the expense, so that option is wrong.
3. Cash receipts reduce Receivables and do not touch the expense, so that option is wrong.
4. Reinstatements reverse the write-off through the allowance, not the expense, so that option is wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4.2 "Allowance Method", p.139_
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