If it is known that a debtor cannot pay because of bankruptcy,the amount to be written off is shown as:

Question

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When a debtor cannot pay because of bankruptcy, the amount is considered a bad debt expense and is written off. The entry for this transaction would be a debit to bad debt expense (which is an expense account shown on the income statement) and a credit to the accounts receivable account (which reduces the amount shown for receivables on the balance sheet). Therefore, the correct option is C, which is a debit on the income statement and a credit on the statement of financial position by reducing the amount shown for receivables. Option A is not correct because bad debt expense is not a negative expense, and it should not be shown as a credit on the income statement. Option B is also incorrect because increasing the amount shown for receivables on the balance sheet does not reflect the reality of the debtor's inability to pay the debt. Option D is incorrect because option C is the correct answer.

If It Is Known That a Debtor Cannot Pay Because