Question

A company uses the allowance method to account for bad debts. What is the effect on each of the following accounts of the collection of an account previously written off?

Allowance for Uncollectible Accounts/Bad Debt Expense
a.Increase/Decrease
b.No effect/Decrease
c.Increase/No effect
d.No effect/No effect

Answer 1

The effect on each of the following accounts of the collection of an account previously written off under the allowance method is: No effect/No effect on both the Allowance for Uncollectible Accounts and Bad Debt Expense accounts.

Step-by-step explanation:

The effect on each of the following accounts of the collection of an account previously written off under the allowance method is: No effect/No effect on both the Allowance for Uncollectible Accounts and Bad Debt Expense accounts.

When an account is collected after being previously written off, it does not affect the Allowance for Uncollectible Accounts because the amount had already been anticipated as a loss. Similarly, it does not impact Bad Debt Expense as it has already been recognized in a previous accounting period.