When the direct write-off method is used, what is the effect on the accounting equation of writing off an uncollectible account receivable on the accounting equation?
What will be an ideal response?
With the direct write-off method, the write-off reduces the asset (accounts receivable) and decreases stockholders' equity (retained earnings). Expenses (uncollectible accounts expense) increase, which decreases net income. The statement of cash flows is not affected by the write-off.
Under the direct write-off method, a company simply recognizes uncollectible accounts expense in the period in which it identifies and writes off uncollectible accounts.
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What will be an ideal response?
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