When an Account Is Written Off Using the Allowance Method

question 45

Multiple Choice

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

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

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Definitions:

Shutdown Point

The lowest point on the average variable cost curve. When price falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firm will shut down and bear losses equal to fixed costs.

Farmer

An individual engaged in agriculture, raising living organisms for food or raw materials, typically leading the operation of farms or animal husbandry.

Price

The amount of money required to purchase a good or service.

Average Price

The sum of all the prices of all the units sold divided by the number of units.