Under The Allowance Method, Writing Off An Uncollectible Account | If A Company Determines Cost Of Goods Sold Each Time A Sale Occurs, It

1. The correct option of this multiple choice question (mcq) is A, as uncollectible accounts expense is already charged to income statement but accounts receivables are not removed off or accounted for on balance sheet.

Initially, under allowance method, when we record Adjustments, atleast one income statement account and one balance sheet account are affected. Uncollectible account is estimated on sales or receivables in order to calculate or find out the expected values of sales or receivables due to non-payment from customers who failed to pay to the company for the goods sold to them on credit.

The adjusting entry to record is to debit uncollectible accounts expense and a credit to allowance for doubtful accounts. Uncollectible accounts expense is an income statement account which affects income statement and recorded as a loss while allowance for doubtful accounts is a contra asset account which affects accounts receivables on balance sheet i.e., it is deducted from accounts receivables on balance sheet.

In case of Writing Off Uncollectible Account, we record the following entry as shown below:

                          Allowance for Doubtful Accounts a/c  XXX

                                                                                      Accounts Receivable a/c  XXX

In the above entry, only balance balance sheet accounts are affected.

The other options A, C and D are incorrect choices of this mcq.

2. If a company or corporation determines cost of sales each time a sale, then it uses a perpetual inventory system as in this system, the updated value of inventory is recorded on daily basis whenever inventory is affected i.e., when inventory purchased, returned, etc., and not on periodic basis which is used in periodic inventory system.

For example, if the sales of 400 made on 5^th September, 2025, then the cost of sales is updated on 5^th September, 2025 when the sales made and not at the end of September, i.e., 30^th September, 2025. In this way, the company gets the updated value of cost of sales on regularly basis whenever the sales is made. Therefore, the correct option of this multiple choice question is D.

In the above example, if the company used the periodic inventory system, then the value of cost of sales is determined at the end of the month of September, 2025 and not on daily basis. The total of all purchases made, returned, etc., and all sales made is adjusted at the end of the month of September.

The options A, B and C are incorrect choices here.