Cancellation of an unpaid debt is called what?

Cancellation of an unpaid debt is called what?

• A. Charge-off
• B. Write-up
• C. Write-down
• D. Write-off

Answer: (D)

When a debt is unlikely to be collected, it is removed from the books. This action is called a write-off. It reflects that the receivable no longer has value and recognizing this loss adjusts the records to show the asset as uncollectible. If there was an allowance for doubtful accounts, the entry uses that allowance to write off the specific amount; otherwise it records a bad debt expense and reduces accounts receivable. Write-down, write-up, and charge-off describe related ideas but are used in different contexts. A write-down lowers the value of an asset that’s still expected to have some value. A write-up increases an asset’s value. A charge-off is a related term sometimes used to indicate that a debt is officially treated as uncollectible for reporting or tax purposes, but the standard term for cancelling an unpaid debt on the books is write-off.

When a debt is unlikely to be collected, it is removed from the books. This action is called a write-off. It reflects that the receivable no longer has value and recognizing this loss adjusts the records to show the asset as uncollectible. If there was an allowance for doubtful accounts, the entry uses that allowance to write off the specific amount; otherwise it records a bad debt expense and reduces accounts receivable.

Write-down, write-up, and charge-off describe related ideas but are used in different contexts. A write-down lowers the value of an asset that’s still expected to have some value. A write-up increases an asset’s value. A charge-off is a related term sometimes used to indicate that a debt is officially treated as uncollectible for reporting or tax purposes, but the standard term for cancelling an unpaid debt on the books is write-off.