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On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.
-Assume that the Loudoun Corporation uses the direct write-off method of accounting for uncollectible accounts.Which of the following answers correctly describes the effect of the write-off of the customer's account on Lindley's financial statements?

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On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.
-Assume that the Loudoun Corporation uses the direct write-off method of accounting for uncollectible accounts.Which of the following answers correctly describes the effect of the write-off of the customer's account on Lindley's financial statements?

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Under the direct write-off method, the account is not recorded as uncollectible until it is actually written off. Therefore, when the customer's account is written off in February 2016, it will reduce Loudoun's net income and accounts receivable balance. The subsequent payment in April 2016 will increase the accounts receivable balance but will not affect net income since the write-off had already been recorded. This will result in a higher accounts receivable balance but no change in net income.

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