Zorro Company Has Significant Amounts of Accounts Receivable and Experiences

question 8

Multiple Choice

Zorro Company has significant amounts of accounts receivable and experiences bad debts from time to time.Zorro uses the direct write-off method.When Zorro Company writes off a bad debt,what is the effect of that single transaction?

• A)It will increase total assets of the company.
• B)It will reduce profit.
• C)It will have no effect on profit.
• D)It will generate positive cash flow.

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Definitions:

Internal Failure Cost

Costs associated with defects found before a product or service is delivered to the customer, such as scrap and rework expenses.

Value-Added Activity

An activity that is needed to meet customer requirements.

Preventive Maintenance

Preventive maintenance involves regularly scheduled inspections, service, and repairs of equipment and facilities to prevent unexpected breakdowns and extend their useful life.

Value-Added

The enhancement added to a product or service by a company before offering it to customers, representing the difference between the cost of inputs and the value of outputs.