Question

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include________

a. debit Accounts Receivable.
b. debit Allowance for Uncollectible Accounts.
c. credit Sales Returns and Allowances.
d. debit Bad Debt Expense.

Answer 1

When writing off an account as uncollectible using the aging method, Shannon Corp. would record a debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable.

Step-by-step explanation:

When Shannon Corp. employs the aging method for accounting for bad debt expense and decides to write off a customer's account of $10,000 as uncollectible, the corresponding journal entry involves a debit to Allowance for Uncollectible Accounts and a credit to Accounts Receivable. This transaction signifies the removal of the specific account from the company's books, indicating that it is no longer considered collectible.

It's crucial to understand that this write-off entry does not directly impact the Income Statement at the time of the write-off. The bad debt expense was recognized earlier when the allowance for uncollectible accounts was established based on the aging method. The write-off entry adjusts the balance sheet by reflecting the reality that the receivable is unlikely to be collected, aligning the company's financial records with the economic reality of the uncollectible account.