Zorro Company has significant amounts of accounts receivable,and experiences uncollectible accounts from time to time.Zorro uses the direct write-off method.When Zorro Company writes off an uncollectible receivable,what is the effect of that single transaction?
A) It will reduce net income.
B) It will have no effect on net income.
C) It will increase total assets of the company.
D) It will generate positive cash flow.

Question

Quizplus · Accepted Answer

Writing off an uncollectible receivable using the direct write-off method involves recognizing an expense (bad debt expense), which reduces net income. Total assets decrease due to the reduction in accounts receivable, and there is no direct effect on cash flow from the write-off itself.

Zorro Company Has Significant Amounts of Accounts Receivable,and Experiences Uncollectible