Which describes the proper treatment for uncollectible taxes?

• A. Write off uncollectibles immediately
• B. Report receivables net of uncollectible amounts
• C. Report receivables gross
• D. Do not report receivables

Answer: (B)

The key idea is recognizing that taxes receivable should reflect the amount the government actually expects to collect. Because some portion will not be collected, the receivable is shown net of an estimated uncollectible amount. This is done by establishing an allowance for uncollectible taxes, so the asset on the balance sheet is the gross receivable minus that allowance. When specific taxes are determined to be uncollectible, they’re written off against the allowance, leaving the net receivable figure intact. This presentation aligns the asset with what will realistically be converted into resources and avoids overstating assets. Writing off immediately would understate assets, reporting receivables gross would overstate them, and not reporting receivables would omit an asset.