Question

This year William provided $4,200 of services to a large client on credit. Unfortunately, this client has recently encountered financial difficulties and has been unable to pay William for the services. Moreover, William does not expect to collect for his services. William has "written off" the account and would like to claim a deduction for tax purposes.a. What amount of deduction for bad debt expense can William claim this year if he uses the accrual method?b. What amount of deduction for bad debt expense can William claim this year if he uses the cash method?

Answer 1

a. $,4,200

b. $0

Step-by-step explanation:

a. What amount of deduction for bad debt expense can William claim this year if he uses the accrual method?

Account receivable that is partially or totally uncollectible can be claimed under accrual method since income and losses are recognized when earned or uncured.

Since there is no expectation that William will collect for his services which he has written its account receivable off, the full amount of $4,200 which he has included in the income is allowed to deducted by him under accrual method.

b. What amount of deduction for bad debt expense can William claim this year if he uses the cash method?

No amount of bad debt can be claimed under cash method since William has not recognized the income for his services in the income.

Therefore, $0 will be claimed.