When the Direct Write-Off Method of Recognizing Bad Debt Expense

question 62

Multiple Choice

When the direct write-off method of recognizing bad debt expense is used,the entry to write off a specific customer account would

• A) increase net income.
• B) have no effect on net income.
• C) increase the accounts receivable balance and increase net income.
• D) decrease the accounts receivable balance and decrease net income.

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Definitions:

Percent of Receivables Method

A method used in accounting to estimate bad debts expense based on a percentage of accounts receivable judged to be uncollectible.

Unadjusted Trial Balance

A financial report that shows the balances of all accounts, including assets, liabilities, equity, income, and expenses before any adjustments are made for the accounting period.

Bad Debts Expense

An expense reported on the income statement reflecting the cost of accounts receivable that a company does not expect to collect.

Factoring Fee Expense

A cost incurred by a business when it sells its accounts receivable to a third party (the factor) at a discount.