When a specific customer’s account receivable is written off as uncollectible, what will be the effect on net income under each of the following methods of recognizing bad debt expense?

 When a specific customer’s account receivable is written off as uncollectible, what will be the effect on net income under each of the following methods of recognizing bad debt expense?



Allowance
Direct Write-Off
None
Decreased
Decreased
None
Decreased
Decreased
None
None
 You Answered Correctly!

None, decrease 

 
This answer is correct because under the allowance method a bad debt is written off by making the following entry:



Allowance for doubtful accounts    xxx    
     Accounts receivable         xxx


Since neither of the accounts involved in this entry is closed to income summary, there can be no income statement effect. Under the direct write-off method, the entry to write off a bad debt would be



Bad debt expense    xxx    
     Accounts receivable         xxx


Since the bad debt expense account is closed to income summary, the write-off will cause net income to decrease.