The amount of accounts receivable that the company expects to never collect is recorded as what?

• A. Bad Debt Expense
• B. Allowance for Doubtful Accounts
• C. Write-Off Expense
• D. Uncollectible Revenue

Answer: (A)

The amount of accounts receivable you don’t expect to collect is tracked in a contra-asset called the Allowance for Doubtful Accounts. This contra-asset sits under Accounts Receivable on the balance sheet and reduces the total receivables to net realizable value. The company recognizes the expected loss in the income statement by debiting Bad Debt Expense, which increases expenses for the period, and crediting the Allowance for Doubtful Accounts. When a specific receivable is later written off, you would debit the Allowance for Doubtful Accounts and credit Accounts Receivable. So, the measured uncollectible portion is carried in the Allowance for Doubtful Accounts, with Bad Debt Expense reflecting the period’s estimated cost.