A Company Uses the Direct Write-Off Method to Account for Bad

question 114

Multiple Choice

A company uses the direct write-off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write-off of a customer's account balance?

• A)Assets and liabilities decrease
• B)Assets and Stockholders' equity decrease
• C)Stockholders' equity and liabilities decrease
• D)Assets increase and Stockholders' equity decrease

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Definitions:

Discount

A reduction on the usual cost of a product or service, typically to stimulate its purchase.

Deadweight Loss

Deadweight loss is a loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable.

Marginal Cost

The increase or decrease in the total cost incurred by producing one additional unit of a product or service.

Socially Efficient

A situation in which resources are allocated in a way that maximizes the welfare of society as a whole.