When a Company Is Using the Direct Write-Off Method, and an Account

question 135

Multiple Choice

When a company is using the direct write-off method, and an account is written off, the journal entry consists of a:

• A)debit to Accounts Receivable and a credit to Cash.
• B)credit to Accounts Receivable and a debit to Bad Debts Expense.
• C)debit to the Allowance for Bad Debts and a credit to Accounts Receivable.
• D)credit Accounts Receivable and a debit to Interest Expense.

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Definitions:

Principal

A main party to a transaction, such as the owner of a business or the party who has authorized an agent to act on their behalf.

Interest

The cost of borrowing money, typically expressed as a percentage of the principal, paid by the borrower to the lender for the use of their money.

Nonnegotiable Instrument

A financial document or contract that cannot be transferred or assigned to another party as easily as a negotiable instrument.

Mortgage

A secured loan agreement where the borrower pledges real property to the lender as collateral for the loan, which becomes void upon payment in full.