The loss from an uncollectible account is:
Click on the arrows to vote for the correct answer
A. B. C. D.C
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 loss from an uncollectible account is considered a regular expense of doing business and is typically classified as an operating expense on the income statement. Therefore, the correct answer is C. a regular expense of doing business.
When a company extends credit to its customers or clients, there is always a risk that some of those customers may default on their payment obligations. An uncollectible account refers to a customer's outstanding balance that the company deems unlikely to be collected. When this happens, the company needs to recognize the financial impact of the loss in its financial statements.
Accounting principles require companies to follow the principle of conservatism, which means that potential losses should be recognized as soon as they are probable and reasonably estimable, while potential gains should only be recognized when realized. Therefore, when it becomes evident that an account is uncollectible, the company needs to record the loss in its financial statements.
The loss from an uncollectible account is typically recorded by debiting an expense account (such as Bad Debt Expense) and crediting the asset account that represents the uncollectible account (such as Accounts Receivable or a specific provision account). This entry reduces the value of the accounts receivable and recognizes the expense associated with the uncollectible account.
It is important to note that the loss from an uncollectible account does not affect any liability or revenue directly. It represents the cost or expense incurred by the company due to the uncollectible account. Hence, options A (an asset), B (a liability), and D (a reduction in revenue) are not correct answers in this context.