A company with significant amounts of accounts receivable experiences uncollectible accounts from time to time.If the company uses the direct write-off method,the effect of writing off an uncollectible receivable will be ________.
A) a reduction in net income
B) negligible on net income
C) an increase in total assets
D) a generation of positive cash flow

Question

Quizplus · Accepted Answer

When using the direct write-off method to account for uncollectible accounts, there is no earlier recognition of bad debts before they are actually written off. As a result, when an uncollectible receivable is written off, it directly reduces the accounts receivable balance and therefore reduces current assets. This reduction in assets will result in a reduction in net income, as the bad debt expense will be recognized as an expense in the period it is written off.

A Company with Significant Amounts of Accounts Receivable Experiences Uncollectible