How is bad debt expense recorded under the allowance method, including write-offs?

How is bad debt expense recorded under the allowance method, including write-offs?

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

Answer: (A)

Under the allowance method, you recognize expected uncollectible accounts by charging Bad Debt Expense and crediting Allowance for Doubtful Accounts. This creates a reserve that reduces net receivables without immediately affecting cash. For example, estimating 5,000 as uncollectible would be a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts for 5,000. When a specific account is later written off as uncollectible, you do not hit expense again; you debit Allowance for Doubtful Accounts and credit Accounts Receivable for the amount of the write-off. This action decreases both the allowance and the gross receivables but does not change net income at that moment, because the expense was recorded when the estimate was first recognized. The other entries would misstate the accounts—debiting Accounts Receivable would increase assets inappropriately, debiting Allowance and crediting Cash would imply a cash collection for a bad debt, and debiting Cash against Revenue would distort income and receipts.

Under the allowance method, you recognize expected uncollectible accounts by charging Bad Debt Expense and crediting Allowance for Doubtful Accounts. This creates a reserve that reduces net receivables without immediately affecting cash. For example, estimating 5,000 as uncollectible would be a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts for 5,000. When a specific account is later written off as uncollectible, you do not hit expense again; you debit Allowance for Doubtful Accounts and credit Accounts Receivable for the amount of the write-off. This action decreases both the allowance and the gross receivables but does not change net income at that moment, because the expense was recorded when the estimate was first recognized. The other entries would misstate the accounts—debiting Accounts Receivable would increase assets inappropriately, debiting Allowance and crediting Cash would imply a cash collection for a bad debt, and debiting Cash against Revenue would distort income and receipts.