Explain why writing off a bad debt against the Allowance for Doubtful Accounts does not reduce the estimated realizable value of a company’s accounts receivable.
The write-off method does not affect the amount of realizable value of a company’s accounts receivables.
While recording a journal entry of bad debt, and an organization uses the write-off method, the allowance for doubtful accounts is debited, and the amount of accounts receivables is credited.
By using the write-off method of accounting, an organization minimizes its amount of accounts receivables and the allowance balance for doubtful accounts by entering the exact or the same amount. It signifies that the net realizable value between them remains unchanged.
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