How is a write-off of an uncollectible account recorded under the allowance method?

• A. Debit Allowance for Doubtful Accounts; Credit Accounts Receivable.
• B. Debit Bad Debt Expense; Credit Accounts Receivable.
• C. Debit Accounts Receivable; Credit Allowance for Doubtful Accounts.
• D. Debit Cash; Credit Accounts Receivable.

Answer: (A)

Under the allowance method, you recognize anticipated bad debts by recording a contra-asset (Allowance for Doubtful Accounts). When you determine a specific receivable is uncollectible, you write it off by reducing both the Accounts Receivable balance and the allowance that was already established. The proper entry is to Debit Allowance for Doubtful Accounts and Credit Accounts Receivable. This uses the pre-set allowance to absorb the loss, so there is no additional impact on net income at the time of the write-off.

The other approaches don’t fit this method: debiting Bad Debt Expense would recognize the loss as an expense again, which the allowance method avoids during a write-off; debiting Accounts Receivable would increase the asset instead of reducing it; reversing the allowance would be inappropriate here; and debiting Cash would imply a cash collection, not a write-off.