When a business realizes a customer will not repay a debt, the money moves to accounts uncollectible. How is money from accounts uncollectible posted?

When a business realizes a customer will not repay a debt, the money moves to accounts uncollectible. How is money from accounts uncollectible posted?

• A. As loss
• B. As liability
• C. As bad debt
• D. As revenue

Answer: (C)

When a customer’s debt is no longer collectible, it creates a loss on the books. The amount is removed from assets (accounts receivable) and recorded as a bad debt expense, signaling that part of expected revenue will not be realized. This is why it’s posted as bad debt, not as a liability or revenue. In practice, you debit Bad Debt Expense and credit Accounts Receivable. If your system uses an allowance for doubtful accounts, you would debit Bad Debt Expense and credit Allowance for Doubtful Accounts; when you actually write off a specific account, you debit Allowance for Doubtful Accounts and credit Accounts Receivable. The essential point: uncollectible amounts are categorized as bad debt, reflecting the loss and reduction in assets.

When a customer’s debt is no longer collectible, it creates a loss on the books. The amount is removed from assets (accounts receivable) and recorded as a bad debt expense, signaling that part of expected revenue will not be realized. This is why it’s posted as bad debt, not as a liability or revenue. In practice, you debit Bad Debt Expense and credit Accounts Receivable. If your system uses an allowance for doubtful accounts, you would debit Bad Debt Expense and credit Allowance for Doubtful Accounts; when you actually write off a specific account, you debit Allowance for Doubtful Accounts and credit Accounts Receivable. The essential point: uncollectible amounts are categorized as bad debt, reflecting the loss and reduction in assets.