On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off.
- Assuming the allowance method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets?
A) Decrease in net income; decrease in total assets.
B) Increase in net income; no effect on total assets.
C) Decrease in net income; no effect on total assets.
D) No effect on 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, writing off an uncollectible account does not affect net income or total assets because the bad debt expense was already recognized when the allowance was initially estimated. The write-off reduces both accounts receivable and the allowance for doubtful accounts, leaving total assets unchanged.

On October 12 of the Current Year, a Company Determined