When an Account Is Written Off Using the Allowance Method

question 27

Multiple Choice

When an account is written off using the allowance method, the

• A) cash realizable value of total accounts receivable will increase.
• B) total accounts receivable will decrease.
• C) allowance account will increase.
• D) total accounts receivable will stay the same.

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Definitions:

Credit Memo

A document issued by a seller to a buyer, reducing the amount that the buyer owes under the terms of an earlier invoice.

Adjusted Cash Balance

The cash balance of a company after adjusting for outstanding checks and deposits in transit, giving a more accurate representation of available funds.

Notes Receivable

A financial asset representing a promise to pay a specific amount of money, plus interest, to the holder of the note at a future date.

NSF Check

Non-Sufficient Funds Check; a check that cannot be processed because the account on which it is drawn does not have enough funds.