On October 29 of the current year, a company concluded that a customer's $4,400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on this company's net income and total assets assuming the allowance method is used to account for bad debts?
A) Decrease in net income; no effect on total assets.
B) No effect on net income; no effect on total assets.
C) Decrease in net income; decrease in total assets.
D) Increase in net income; no effect on total assets.
E) No effect on net income; decrease in total assets.

Question

Quizplus · Accepted Answer

Under the allowance method, bad debts expense has already been estimated and recorded, affecting net income in the period the estimate was made. The write-off of an actual account receivable against the allowance for doubtful accounts does not affect net income further nor does it change the total assets, as it merely adjusts two balance sheet accounts against each other (reducing both accounts receivable and the allowance for doubtful accounts by the same amount).

On October 29 of the Current Year, a Company Concluded