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What happens when you estimate uncollectible accounts to the accounting equation?
What happens when you estimate uncollectible accounts to the accounting equation?
Expert Solution
The basic accounting equation is Assets = Liabilities + Stockholders' Equity
When you estimate uncollectible accounts, the proforma journal entry is as follows:
| Account | Debit | Credit |
|---|---|---|
| Uncollectible accounts expense | XXX | |
| Allowance for uncollectible accounts | XXX |
A debit on uncollectible accounts expense would result to a decrease in the Retained Earnings account which will have an effect of a decrease also in the total Stockholders' Equity in the accounting equation. A credit in the allowance for doubtful accounts would result to a decrease in the Accounts Receivable accounts which will have an effect of decrease also in the total Assets in the accounting equation.
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