On December 1, Anson's Drug Store concluded that a customer's $325 account receivable was uncollected and that the account should be written off. What effect will this write-off have on the company's net income and balance sheet totals assuming the direct write-off method is used to account for bad debts? a. decrease in net income; decrease in total assets b. no effect on net income; no effect on total assets c. increase in net income; no effect on total assets d. no effect on net income; decrease in total assets
On December 1, Anson's Drug Store concluded that a customer's $325 account receivable was uncollected and that the account should be written off. What effect will this write-off have on the company's net income and balance sheet totals assuming the direct write-off method is used to account for bad debts? a. decrease in net income; decrease in total assets b. no effect on net income; no effect on total assets c. increase in net income; no effect on total assets d. no effect on net income; decrease in total assets
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On December 1, Anson's Drug Store concluded that a customer's $325 account receivable was uncollected and that the account should be written off. What effect will this write-off have on the company's net income and balance sheet totals assuming the direct write-off method is used to account for bad debts ?
a. decrease in net income; decrease in total assets
b. no effect on net income; no effect on total assets
c. increase in net income; no effect on total assets
d. no effect on net income; decrease in total assets
Expert Solution
Step 1
In the direct write-off method the bad debt expense is debited and the accounts receivable account is credited. This means there is an increase in expense that will result in a decrease in net income and there is a decrease in the current assets (accounts receivable) that will result in an overall decrease in total assets in the balance sheet.
Therefore the effect of the write-off will be a decrease in net income; decrease in total assets.
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