The write-off of a specific credit customer's account ______.Multiple choice question.increases Bad Debt Expense on the income statement and decreases the net receivable balance on the balance sheethas no effect on the income statement or the net receivable balance on the balance sheetincreases Bad Debt Expense on the income statement and increases the net receivable balance on the balance sheetdecreases Bad Debt Expense on the income statement and decreases the net receivable balance on the balance sheet
Question
The write-off of a specific credit customer's account ______.Multiple choice question.increases Bad Debt Expense on the income statement and decreases the net receivable balance on the balance sheethas no effect on the income statement or the net receivable balance on the balance sheetincreases Bad Debt Expense on the income statement and increases the net receivable balance on the balance sheetdecreases Bad Debt Expense on the income statement and decreases the net receivable balance on the balance sheet
Solution
The correct answer is "increases Bad Debt Expense on the income statement and decreases the net receivable balance on the balance sheet".
Here's why:
When a specific credit customer's account is written off, it means that the company has deemed the debt uncollectible and has given up on trying to collect it. This is recorded as an increase in Bad Debt Expense on the income statement, because it represents a loss for the company.
At the same time, the net receivable balance on the balance sheet decreases. This is because the net receivable balance represents the total amount of money that the company expects to collect from its customers. When a debt is written off, it is no longer included in this total, so the net receivable balance decreases.
Similar Questions
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Sam Ltd. writes off a specific customer's account of $1,000 as uncollectible. Which of the following journal entries is made under the direct write-off method?Question 23Answera.Debit Accounts Receivable, Credit Bad Debt Expenseb.Debit Bad Debt Expense, Credit Accounts Receivablec.Debit Bad Debt Expense, Credit Allowance for Doubtful Accountd.Debit Allowance for Doubtful Accounts, Credit Bad Debt Expense
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