Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible account. a. affects only income statement accounts. b. is not an acceptable practice. c. affects only balance sheet accounts. d. affects both balance sheet and income statement accounts.

Option C) Affects only balance sheet accounts.

Explanation:

Affects only Balance Sheets Accounts because the write-offs under the allowance method register an entry as a debits in Allowance for Doubtful Accounts and credits Accounts Receivable, both accounts belongs to the balance sheet instead of the income statement.

The correct answer is B: direct write-off method

Explanation:

Unfortunately, some sales on account may not be collected. Customers go broke, become unhappy and refuse to pay, or may generally lack the ethics to complete their half of the bargain. It is necessary to establish an accounting process for measuring and reporting these uncollectible items. Uncollectible accounts are frequently called “bad debts.”

There are two methods of accounting to manage uncollectable accounts:

1- Allowance method

2- Direct Write-off Method

2- Under this method, there is no allowance account. An account receivable is written-off directly to expense only after the account is determined to be uncollectible. This method is required for income tax purposes. The direct write-off method is easy to operate as it only requires that specific debts are written off as they are identified with a simple journal. The problem with the method, however, is that it does not comply with the matching principle, in that revenue might be recorded in one period, when the customer is invoiced, whereas the expense of writing off the uncollectible amount is recorded in a completely different period when the amount is identified as irrecoverable.

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