Loss from an Uncollectible Account

B

The benefit from selling on credit to customers far outweighs the cost of losses from uncollectible accounts. These losses are a regular expense of doing business.

The correct answer is C. a liability.

When an account becomes uncollectible, it means that the company is unable to collect the amount owed from a customer or debtor. This typically happens when the customer is unable or unwilling to pay, has gone bankrupt, or is no longer in business.

In accounting, uncollectible accounts are considered a loss because the company has already recognized the revenue associated with the sale or service provided, but it is unlikely to receive the cash or payment for that transaction. This loss is recorded on the company's financial statements to reflect the decrease in the company's assets or increase in its liabilities.

Here's a breakdown of each option:

A. an asset: An asset represents something of value that a company owns or controls. An uncollectible account is not an asset because it represents an amount that the company is unable to collect, resulting in a decrease in its overall assets.

B. a regular expense of doing business: While uncollectible accounts can be considered a cost of doing business, they are not considered a regular expense. Regular expenses typically refer to recurring costs, such as salaries, rent, utilities, or advertising.

C. a liability: This is the correct answer. When an account becomes uncollectible, it creates a liability for the company because it owes the amount receivable to the customer. The company needs to account for this liability by reducing its accounts receivable and recording an allowance for doubtful accounts, which represents the estimated amount of uncollectible accounts.

D. a reduction in revenue: While an uncollectible account represents a loss of revenue that the company had initially recognized, it is not considered a reduction in revenue. Revenue reduction typically occurs due to sales returns or discounts given to customers.

In summary, the loss from an uncollectible account is classified as a liability because it represents an amount owed by the company to the customer that is unlikely to be collected.