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    Effects of various allowance for bad debt transactions

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    How is the income statement affected when a company records an allowance for future bad debts? How is the statement of cash flows using the direct method affected when a company records an allowance for future bad debts? Which accounts are affected when a company records a sale for cash?

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    Solution Preview

    In financial accounting, an allowance for bad debts increases expense, following the matching principle. Using accrual accounting, the credit sales are in revenue and the allowance says that not all of the credit sales will be collected. ...

    Solution Summary

    The solution determines what are the effects of various allowance for bad debt transactions on cash, the income statement and the statement of cash flows.

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