Multiple Choice
Which of the following does NOT reduce the balance in Accounts Receivable under the direct write-off method?
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7. Receivables and Investments
Net Accounts Receivable: Direct Write-off Method
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Jasper Company uses the direct write-off method for uncollectible accounts. If Jasper has total assets of $100,000, accounts receivable of $10,000, and writes off $2,000 of uncollectible accounts, what is the total value of Jasper’s assets after the write-off?
A
$98,000
B
$102,000
C
$108,000
D
$100,000
Verified step by step guidance1
Understand the direct write-off method: Under this method, uncollectible accounts are directly written off as an expense when they are deemed uncollectible. This reduces both accounts receivable and total assets by the same amount.
Identify the initial values: Jasper Company has total assets of $100,000 and accounts receivable of $10,000 before the write-off.
Determine the amount to be written off: The problem states that $2,000 of uncollectible accounts is being written off.
Adjust accounts receivable: Subtract the $2,000 write-off from the accounts receivable balance of $10,000. This reduces accounts receivable to $8,000.
Adjust total assets: Since accounts receivable is part of total assets, subtract the $2,000 write-off from the total assets of $100,000. This gives the new total value of Jasper’s assets.
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