Final answer:
The correct answer is option 2. A credit to accounts receivable is recorded when the company is estimating the annual allowance for uncollectible accounts.
Step-by-step explanation:
A credit to accounts receivable is recorded when the company is estimating the annual allowance for uncollectible accounts. This is done to account for the possibility that some customers may not pay their outstanding debts. By recording a credit to accounts receivable, the company is acknowledging that a portion of the accounts receivable balance may not be collected.
For example, let's say a company has accounts receivable of $10,000 and estimates that 5% of that amount will not be collected. They would record a credit of $500 to accounts receivable, reducing the balance to $9,500 to reflect the estimated uncollectible amount.
The other options mentioned in the question do not involve recording a credit to accounts receivable. Instead, they involve different accounting entries. Selling inventory on account would result in a credit to sales revenue and a debit to accounts receivable.
Estimating annual sales returns would typically involve a debit to sales returns and allowances and a credit to sales revenue. Finally, the write-off of bad debts would involve a credit to accounts receivable and a debit to an expense account, such as bad debts expense.