Question

Which of the following is the entry to write-off uncollectible accounts?

1) Debit Bad Debts Expense; Credit Accounts Receivable
2) Debit Bad Debts Expense; Credit Allowance for Doubtful Accounts
3) Debit Allowance for Doubtful Accounts; Credit Bad Debts Expense
4) Debit Accounts Receivable; Credit Bad Debts Expense

Answer 1

The correct entry to write off uncollectible accounts is to debit Bad Debts Expense and credit Allowance for Doubtful Accounts, reflecting the anticipation of such losses in the allowance method.

Step-by-step explanation:

The correct entry to write-off uncollectible accounts is: Debit Bad Debts Expense; Credit Allowance for Doubtful Accounts. This entry reflects the use of the allowance method, where businesses estimate future bad debts and record an adjusting entry to reflect these anticipated losses. When an account is deemed to be uncollectible, the company would debit the Bad Debts Expense to recognize the loss and credit the Allowance for Doubtful Accounts to remove the specific amount from the allowance account. It is important to note that the actual Accounts Receivable is not directly written off at this stage; instead, the write-off is against the allowance account that was previously established for such losses.