Question

What are the effect of the write-off of uncollectible accounts (using the allowance method) on (a) net income and (b) net accounts receivable?

Answer 1

When we write off an account we pass the following entry Allowance for doubtful accounts DR Accounts receivable CR Accounts receivable is an asset account and allowance for doubtful accounts is a contra asset account. Thus (a) there is no effect on net income when account is written off (b)The net effect on net accounts receivable will be nil as we are reducing accounts receivable and allowance for doubtful accounts with the same amount.so the net accounts receivable remains the same as it was when the accounts was not written off