What is the accounting treatment for a debt that cannot be collected?

When a debt cannot be collected, it is treated as irrecoverable, which means it should be removed from the ledger accounts. This action is essential because keeping uncollectible debts on the books would misrepresent the financial position of the company. By removing the debt, the company's accounts receivable reflect only amounts that are expected to be collected, leading to a more accurate presentation of financial statements.

The elimination typically involves debiting an expense account, such as 'bad debts expense', and crediting the accounts receivable. This approach ensures that the financial statements provide a true and fair view of the organization's financial health and contributes to sound decision-making based on reliable data.

The other options do not accurately reflect the correct accounting practice for uncollectible debts. Increasing receivables or transferring them to another account does not resolve the issue of collectibility. Reducing the allowance for doubtful accounts could misrepresent the company’s risk exposure unless it accurately reflects the anticipated uncollectible debts. Thus, removing the debt is the most straightforward and accurate method of accounting for debts that cannot be collected.