During the current year, TechCom concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on TechCom's current year net income and balance sheet assuming the allowance method is used to account for bad debts?
A) No effect on net income or on total assets
B) Decrease in net income; no effect on total assets
C) Decrease in net income; decrease in total assets
D) Increase in net income; no effect on total assets
E) No effect on net income; decrease in total assets

Question

Quizplus · Accepted Answer

Under the allowance method, bad debts expense is estimated and recorded in advance of specific account write-offs. When an account is actually written off, it does not affect net income because the expense was already recognized. The write-off decreases both Accounts Receivable and the Allowance for Doubtful Accounts, leaving total assets unchanged.

During the Current Year, TechCom Concluded That a Customer's $4,400