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On October 29 of the current year, a company concluded that a customer’s $4,400 account receivable was uncollectible and that the account should be written off
On October 29 of the current year, a company concluded that a customer’s $4,400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on the company’s net income and total assets assuming the allowance method is used to account for bad debts?
-
- Decrease in net income; no effect on total assets
- No effect on net income; no effect on total assets
- Decrease in net income; decrease in total assets
- Increase in net income; no effect on total assets
- No effect on net income; decrease in total assets
Expert Solution
Answer:
b .
Step-by-Step explanation
The journal entry to record the uncollectible written off under allowance method is as follows:
Allowance for doubtful debts-----------------------Dr--------$4,400
Accounts Receivables-----------------Cr------------$4,400
Above journal entry does not affect the net income and the total asset is also not get affected because above journal entry give nil effect on net realizable value of account receivables.
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