Katy Company uses the allowance method.Katy writes off a customer account balance when it becomes clear that the particular customer will never pay.How will this write-off affect the company's net income and accounts receivable turnover ratio?
A)Net income and the account receivable turnover ratio will both decrease.
B)Net income will decrease;the account receivable turnover ratio will not change.
C)Net income will not change;the account receivable turnover ratio will decrease.
D)Net income will not change;the account receivable turnover ratio will not change.

Question

Quizplus · Accepted Answer

When the allowance method is used and a customer account is written off,a decrease is recorded in Accounts Receivable,which would be offset by a decrease in the contra-account,Allowance for Doubtful Accounts.A write-off does not affect revenues,expenses,or net income.The accounts receivable turnover ratio is calculated by dividing net sales revenue by average net receivables.Since net receivables are not affected by a write-off,this ratio would not be impacted.

Katy Company Uses the Allowance Method