Question

Using the direct write-off method of recognizing bad debts results in a(n) _____________ to Provision for Doubtful Accounts and a(n) ___________ to Accounts Receivable.

1) decrease; increase
2) decrease; decrease
3) increase; decrease
4) increase; increase

Answer 1

The direct write-off method decreases both Provision for Doubtful Accounts and Accounts Receivable, with the correct answer being 2) decrease; decrease. This method reflects uncollectible funds by directly impacting the expense and receivables without using the allowance account.

Step-by-step explanation:

Using the direct write-off method of recognizing bad debts results in a decrease to Provision for Doubtful Accounts and a decrease to Accounts Receivable. Therefore, the correct answer is 2) decrease; decrease.

When a specific account is deemed uncollectible, the direct write-off method writes off the bad debt directly to the expense, which means that the business will decrease the Accounts Receivable by the amount considered uncollectible and record a corresponding entry that will increase the Bad Debt Expense.

The Provision for Doubtful Accounts, also known as Allowance for Doubtful Accounts, is not used in direct write-off method; instead, this method impacts the Bad Debt Expense account directly.