Fenchurch Corp.uses the direct write-off method to account for bad debts.What are the effects of the adjustment to record the write-off of a customer's account balance?
A)Assets and liabilities decrease.
B)Assets and stockholders' equity decrease.
C)Stockholders' equity decrease and liabilities increase.
D)No effect;assets increase and decrease by the same amount.

Question

Quizplus · Accepted Answer

When using the direct write-off method to account for bad debts, the adjustment to record the write-off of a customer's account balance results in a decrease in both the assets (specifically accounts receivable) and stockholders' equity. Liabilities are not affected by this adjustment.