Final answer:
When a company is owed money by someone who files for bankruptcy, the write-off is recorded in two accounts: the Bad Debt Expense account and the Allowance for Doubtful Accounts account.
Step-by-step explanation:
When a company is owed money by someone who files for bankruptcy, the write-off is recorded in two accounts: the Bad Debt Expense account and the Allowance for Doubtful Accounts account.
The Bad Debt Expense account is used to record the amount of money that the company believes it will not be able to collect. This account is an expense account and is reported on the income statement. When a company writes off a debt as uncollectible, it debits the Bad Debt Expense account and credits the Accounts Receivable account.
The Allowance for Doubtful Accounts account is a contra-asset account that is used to estimate the amount of bad debts that the company will likely have in the future. This account is reported on the balance sheet as a deduction from the Accounts Receivable account. When a company writes off a debt as uncollectible, it debits the Allowance for Doubtful Accounts account and credits the Accounts Receivable account.