Under the direct write-off method, how is the net accounts receivable balance affected when a specific account is written off as uncollectible?

• A. Net accounts receivable remains unchanged.
• B. Net accounts receivable decreases by the amount written off.
• C. Net accounts receivable is only affected at year-end adjustments.
• D. Net accounts receivable increases by the amount written off.

Answer: (B)

Verified step by step guidance

1. Understand the direct write-off method: This method records bad debts only when a specific account is deemed uncollectible, rather than estimating bad debts in advance.
2. Recall the formula for net accounts receivable: Net accounts receivable = Accounts receivable - Allowance for doubtful accounts. Under the direct write-off method, there is no allowance for doubtful accounts because bad debts are recognized directly.
3. Analyze the impact of writing off an account: When a specific account is written off, the accounts receivable balance decreases by the amount written off, as the uncollectible account is removed from the ledger.
4. Consider the net accounts receivable balance: Since the direct write-off method does not use an allowance for doubtful accounts, the decrease in accounts receivable directly reduces the net accounts receivable balance.
5. Conclude the effect: Writing off an account under the direct write-off method decreases the net accounts receivable balance by the amount written off, as the uncollectible account is removed from the total accounts receivable.