The Allowance for Uncollectible Accounts is a contra asset account representing the amount of accounts receivable that we do not expect to collect.
22. Bad debt expense is the amount of the adjustment to the allowance for uncollectible accounts that represents the cost of the estimated future bad debts.
23. One disadvantage of the allowance method (over the direct write-off method) for recording uncollectible accounts is that it generally matches bad debt expense with the revenue it helped to generate.
24. If a company is owed $10,000 by its customers, but it expects that $1,000 will not be collected, accounts receivable in the balance sheet are reported at the net amount of $9,000.
25. The aging method for estimating uncollectible accounts considers that a higher percentage of “older” accounts will not be collected compared to “newer” accounts.
26. A company expects 5% of its newer accounts receivable to be uncollectible and 20% of its older accounts to be uncollectible. If the company has $40,000 of newer accounts and $5,000 of older accounts, the total estimate of uncollectible accounts is $2,000.
27. Under the allowance method, when a company writes off an account receivable as an actual bad debt, it reduces total assets.
28. Under the allowance method, when a company writes off an account receivable as an actual bad debt, it records an expense.
29. Under the allowance method, the write-off of an actual bad debt is recorded with a debit to the Allowance for Uncollectible Accounts and a credit to Accounts Receivable.
30. Under the allowance method, when a company collects cash from an account previously written off, total assets increase.
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