Question

Essentially, adjusting entries are made to the estimated bad debt expense in the ADA contra-account when specific write-offs with identified accounts receivables happen. For a specific write-off, you _____ ADA and _____ Accounts receivable.

Answer 1

When writing off a specific account receivable, debit ADA and credit Accounts Receivable to remove the uncollectible amount from the company's books. This reflects in a decrease in both the receivables and the allowance for doubtful accounts, without impacting the income statement further.

Step-by-step explanation:

For a specific write-off, you debit Allowance for Doubtful Accounts (ADA) and credit Accounts Receivable. This is done to remove the uncollectible amount from the Accounts Receivable balance and to reduce the ADA by the same amount, reflecting that the receivable is no longer expected to be collected. The ADA is a contra-account to Accounts Receivable that helps companies estimate future bad debt expenses. When an account is deemed uncollectible, the ADA is adjusted to write off the specific bad debt, a process that does not affect the income statement since the expense was already recognized when the allowance was initially estimated.