Polo, Inc. uses the allowance method of accounting for bad debts. During July, Torey's account was written off as uncollectible. The write-off of Torey's account
A)increases both the current and quick ratios.
B)decreases the current ratio and has no effect on the quick ratio.
C)has no effect on the current and quick ratios.
D)increases the current ratio and has no effect on the quick ratio.

Question

Quizplus · Accepted Answer

The write-off of Torey's account under the allowance method has no effect on the current and quick ratios because it involves only a reduction in Accounts Receivable and a corresponding reduction in the Allowance for Doubtful Accounts, leaving the net realizable value of accounts receivable unchanged, as well as total current assets and liabilities.

Polo, Inc Uses the Allowance Method of Accounting for Bad Debts