Scelta multipla
Under the direct write-off method, how does writing off an uncollectible account affect net accounts receivable on the balance sheet?
230
views
7. Receivables and Investments
Net Accounts Receivable: Direct Write-off Method
Scelta multipla
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.
Guida verificata passo dopo passo1
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.
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.
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.
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.
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.
Video correlati
Pratica correlata
