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 direct write-off 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) Decrease in net income; no effect on total assets.
C) Increase 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

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 direct write-off 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) Decrease in net income; no effect on total assets.
C) Increase 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.

Quizplus · Accepted Answer

The direct write-off method involves recording a bad debt expense when a specific account is determined to be uncollectible and writing off the account by removing it from accounts receivable. This will decrease total assets as the uncollectible account is removed from accounts receivable, and decrease net income as bad debt expense is recognized.

On October 12 of the Current Year, a Company Determined