Which of the following statements regarding the allowance method for uncollectible accounts is FALSE?

• A. The allowance method matches bad debt expense to the period in which the related sales are made.
• B. The allowance for doubtful accounts is a contra-asset account that reduces accounts receivable on the balance sheet.
• C. When a specific account is written off, total assets decrease.
• D. The allowance method requires an estimate of uncollectible accounts at the end of each period.

Answer: (C)

Verified step by step guidance

1. Understand the allowance method for uncollectible accounts: This method is used to estimate and record bad debt expense in the same period as the related sales, adhering to the matching principle in accounting.
2. Recognize that the allowance for doubtful accounts is a contra-asset account: It reduces the accounts receivable balance on the balance sheet to reflect the expected uncollectible amounts.
3. Analyze the statement about writing off specific accounts: When a specific account is written off under the allowance method, the reduction in accounts receivable is offset by a reduction in the allowance for doubtful accounts. Therefore, total assets remain unchanged.
4. Review the requirement for estimating uncollectible accounts: At the end of each period, an estimate of uncollectible accounts is made to adjust the allowance for doubtful accounts and record bad debt expense.
5. Identify the false statement: Based on the analysis, the statement 'When a specific account is written off, total assets decrease' is false because the write-off does not affect total assets under the allowance method.