Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Net Accounts Receivable: Allowance for Doubtful Accounts

Financial Accounting

7. Receivables and Investments

Net Accounts Receivable: Allowance for Doubtful Accounts

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Multiple Choice

Under the allowance method, the write-off of accounts receivable:

increases total assets and net income

increases the allowance for doubtful accounts

does not affect net accounts receivable or net income

decreases net accounts receivable and net income

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Verified step by step guidance

Understand the allowance method: The allowance method is used to account for uncollectible accounts receivable. It involves estimating bad debts and recording them as an expense, while also creating an allowance for doubtful accounts (a contra-asset account).

Analyze the write-off process: When an account is written off under the allowance method, the company removes the specific account receivable from its books and reduces the allowance for doubtful accounts by the same amount.

Determine the impact on net accounts receivable: Net accounts receivable is calculated as accounts receivable minus the allowance for doubtful accounts. Since both the accounts receivable and the allowance for doubtful accounts decrease by the same amount during a write-off, net accounts receivable remains unchanged.

Evaluate the impact on net income: The write-off does not affect net income because the expense for bad debts was already recognized earlier when the allowance for doubtful accounts was created. The write-off is simply an adjustment to the accounts, not a new expense.

Conclude the effects: The write-off under the allowance method does not affect net accounts receivable or net income, as it is a reclassification within the balance sheet accounts.