Multiple Choice
Accounts receivable are normally reported at the:
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7. Receivables and Investments
Net Accounts Receivable: Direct Write-off Method
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Which of the following is NOT affected by noncash items when using the direct write-off method for uncollectible accounts?
A
Net accounts receivable
B
Bad debt expense
C
Cash balance
D
Accounts receivable
Verified step by step guidance1
Understand the direct write-off method: This method records bad debt expense only when a specific account is deemed uncollectible. It directly reduces accounts receivable and increases bad debt expense.
Analyze the impact of noncash items: Noncash items, such as bad debt expense, affect accounts receivable and net accounts receivable because they reduce the value of receivables on the balance sheet.
Consider the cash balance: Noncash items do not directly affect the cash balance because they involve adjustments to accounts receivable and bad debt expense, not cash transactions.
Evaluate net accounts receivable: Net accounts receivable is affected because it represents the total accounts receivable minus any allowances or write-offs, which are influenced by noncash items.
Conclude the unaffected item: Since cash balance is not impacted by noncash items in the direct write-off method, it is the correct answer to the question.
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