What does it mean to "write off" an uncollectible account?

To "write off" an uncollectible account means to remove the receivable from the books. This process usually occurs when it becomes clear that a customer is unlikely to pay their debt, which results in the company recognizing that the asset (the receivable) is no longer collectible.

Writing off an uncollectible account entails recording a journal entry that reduces both the accounts receivable and the allowance for doubtful accounts (or bad debt expense) to reflect the loss accurately in the financial statements. This action helps maintain the integrity of the accounts receivable balance, providing a more realistic view of what the company can expect to collect.

Other choices do not accurately describe the process of writing off an uncollectible account. Acknowledging that the account will be collected contradicts the very definition of a write-off, as it implies expectation of payment. Transferring the account to a collection agency is a separate action that does not remove the receivable from the company's books; it often remains recorded until it is ultimately deemed uncollectible. Adjusting an account to its fair market value doesn’t pertain to the act of writing off; rather, it refers to valuing assets based on current market conditions. In contrast, writing off an account is a