Which balance sheet account decreases accounts receivable to reflect uncollectible amounts?

• A. Allowance for Doubtful Accounts
• B. Bad Debt Expense
• C. Notes Receivable
• D. Inventory

Answer: (A)

When some receivables aren’t expected to be collected, the company adjusts the amount shown for receivables by using a contra-asset. The Allowance for Doubtful Accounts sits alongside accounts receivable and reduces its net amount on the balance sheet, so the net accounts receivable reflects what the company realistically expects to collect. This allowance is created by recording a debit to Bad Debt Expense and a credit to the Allowance for Doubtful Accounts. Later, if a specific receivable is actually written off, you would debit the Allowance for Doubtful Accounts and credit Accounts Receivable, removing that uncollectible amount from AR without changing the income statement at that moment. Notes Receivable and Inventory aren’t used to directly reduce accounts receivable for uncollectibles, and Bad Debt Expense is an income statement item, not the balance-sheet reduction itself.