Final answer:
In the Allowance Method, writing off a receivable leads to a reduction in assets without affecting net income, as the loss has already been accounted for in the allowance for doubtful accounts.
Step-by-step explanation:
Your explanation accurately describes the accounting treatment of writing off a receivable using the Allowance Method. When a receivable is deemed uncollectible and is written off, it results in a reduction in assets, specifically in the accounts receivable on the balance sheet. However, because the allowance for doubtful accounts was previously established to anticipate such losses, there is no direct impact on the net income at the time of the write-off.
The allowance for doubtful accounts serves as a contra-asset account that is deducted from the total accounts receivable. By creating this allowance, the company has already recognized an estimated amount of uncollectible accounts, aligning with the matching principle in accounting.
When the write-off occurs, the T-accounts for both accounts receivable and the allowance are adjusted to reflect the removal of the specific receivable. While the asset side decreases, the allowance account absorbs the impact on the liability side, maintaining a consistent net realizable value. This approach ensures that the company's net worth is not directly affected by the write-off itself, as the loss was already accounted for in the allowance for doubtful accounts.