Final answer:
Accountants use the allowance method to recognize the expense for uncollectible accounts receivable by estimating the uncollectible amount and matching the expense to the period when the revenue was earned.
Step-by-step explanation:
Accountants usually recognize the expense for uncollectible accounts receivable (AR) through a method known as the allowance method. In this approach, an estimate is made of the total accounts that will not be collected, and an expense is recorded in the period when the revenues are earned, rather than when the specific accounts are written off as uncollectible. The rationale behind this method is to adhere to the matching principle of accounting, which dictates that expenses should be matched with the revenues they help generate.
To estimate the allowance for doubtful accounts, accountants use historical data, industry averages, and company-specific information to predict the percentage of AR that is likely to be uncollectible. This estimated amount is recorded as a bad debt expense on the income statement and simultaneously as an allowance (a contra-asset account) on the balance sheet. When an account is deemed uncollectible, it is written off against the allowance for doubtful accounts without affecting the current period income statement, since the expense was already recognized when the initial estimate was made.