True or False: An allowance for doubtful accounts is estimated and posted to the General Ledger.

True or False: An allowance for doubtful accounts is estimated and posted to the General Ledger.

• A. True
• B. False
• C. Only for delinquent accounts
• D. Only when debts are adjusted

Answer: (A)

The statement is true because an allowance for doubtful accounts is necessary for accurately reflecting the estimated collectible amounts on financial statements. This allowance is an accounting estimate that reflects the portion of accounts receivable that is expected to be uncollectible, which helps to provide a more realistic view of a company's financial health. In practice, businesses assess the collectibility of their receivables and create an allowance based on factors such as historical data, current market conditions, and specific account information. This estimated allowance is then posted to the General Ledger, affecting both the balance sheet and income statement. By doing this, businesses adhere to the principle of conservatism in accounting, ensuring that revenues are not overstated and that potential losses are recognized in the appropriate period. This process helps maintain the integrity of financial reporting by ensuring that investors and stakeholders have accurate information regarding the organization's assets.

The statement is true because an allowance for doubtful accounts is necessary for accurately reflecting the estimated collectible amounts on financial statements. This allowance is an accounting estimate that reflects the portion of accounts receivable that is expected to be uncollectible, which helps to provide a more realistic view of a company's financial health.

In practice, businesses assess the collectibility of their receivables and create an allowance based on factors such as historical data, current market conditions, and specific account information. This estimated allowance is then posted to the General Ledger, affecting both the balance sheet and income statement. By doing this, businesses adhere to the principle of conservatism in accounting, ensuring that revenues are not overstated and that potential losses are recognized in the appropriate period.

This process helps maintain the integrity of financial reporting by ensuring that investors and stakeholders have accurate information regarding the organization's assets.