Question

What does the journal entry to record a bad debt write-off cause?

1) Decrease in accounts receivable and increase in bad debt expense
2) Decrease in accounts receivable and decrease in bad debt expense
3) Increase in accounts receivable and increase in bad debt expense
4) Increase in accounts receivable and decrease in bad debt expense

Answer 1

The journal entry for writing off bad debt causes a decrease in accounts receivable and an increase in bad debt expense, reflecting the loss of an asset and the recognition of a cost to the business.

Step-by-step explanation:

The journal entry to record a bad debt write-off typically includes a decrease in accounts receivable and an increase in bad debt expense. This is because when a business realizes that a receivable is no longer collectible, it must remove that receivable from its accounts and recognize the loss. The accounting entry would debit the bad debt expense, increasing it, since it represents a cost to the business. Similarly, accounts receivable would be credited, decreasing it, to reflect that the company's asset (the receivable) is now reduced by the uncollectible amount.