SRM Company uses the allowance method to record its bad debt expense. When the account of a particular customer is deemed to be uncollectible and is written off, which of the following will be included in the journal entry?
A) Credit to bad debt expense.
B) Debit to bad debt expense.
C) Debit to trade receivables.
D) Debit to allowance for doubtful accounts.

Question

Quizplus · Accepted Answer

When a customer's account is deemed to be uncollectible and is written off, the journal entry will include a debit to the allowance for doubtful accounts and a credit to the trade receivables account. This is because the allowance for doubtful accounts is a contra asset account that reduces the overall balance of the trade receivables account, and the write-off reduces the balance of the specific customer's account within the trade receivables account. There is no debit or credit to the bad debt expense account at the time of the write-off, as this expense has already been recognized and recorded in a prior period through the use of the allowance method.

SRM Company Uses the Allowance Method to Record Its Bad