Question

Under the allowance method, bad debts expense is debited when an account is deemed uncollectible and must be written off.

True or False?

Answer 1

Under the allowance method, bad debts expense is debited when an account is deemed uncollectible and must be written off. This recognizes the estimated loss from uncollectible accounts.

Step-by-step explanation:

True.

Under the allowance method, bad debts expense is debited when an account is deemed uncollectible and must be written off. This is because the allowance method recognizes potential bad debts before they actually occur. By debiting the bad debts expense, the company reduces its accounts receivable and recognizes the estimated loss from uncollectible accounts.

For example, if a company determines that a customer's account is uncollectible, they would debit the bad debts expense and credit the accounts receivable. This ensures that the company reflects the decrease in assets and the loss on the income statement.