When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt?
A) Assets and stockholders' equity increase.
B) Assets and stockholders' equity decrease.
C) Assets increase and stockholders' equity decreases.
D) No effect on overall assets or equity.

Question

Quizplus · Accepted Answer

When a company writes off a bad debt under the allowance method, it reduces accounts receivable and the allowance for doubtful accounts by the same amount. This action does not affect the total assets or the stockholders' equity, as it is merely an adjustment within the assets.

When Using the Allowance Method, What Are the Effects on the Accounting