Multiple Choice
When the direct write-off method is used, an entry for bad debt expense is required:
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7. Receivables and Investments
Net Accounts Receivable: Direct Write-off Method
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
The amount of current assets minus current liabilities is called:
A
Retained earnings
B
Gross profit
C
Working capital
D
Net accounts receivable
Verified step by step guidance1
Understand the concept of working capital: Working capital is a financial metric that represents the difference between a company's current assets and current liabilities. It is used to measure a company's short-term liquidity and operational efficiency.
Identify current assets: Current assets are assets that are expected to be converted into cash, sold, or consumed within one year. Examples include cash, accounts receivable, inventory, and prepaid expenses.
Identify current liabilities: Current liabilities are obligations that are due within one year. Examples include accounts payable, short-term debt, and accrued expenses.
Calculate working capital: The formula for working capital is: . Subtract the total current liabilities from the total current assets to determine the working capital.
Interpret the result: A positive working capital indicates that the company has sufficient short-term assets to cover its short-term liabilities, while a negative working capital may signal liquidity issues.
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