Test: CPA Financial Accounting and Reporting (FAR)

1.

A company estimates that its bad debt expense each year will be 2% of credit sales. In the current period, one customer balance of $6,000 is determined to be uncollectible. Which of the following is true?

The write off will increase bad debt expense for the current period

The write off will reduce the net amount reported for trade receivables for the period

The write off will reduce the allowance for doubtful accounts in the current period but not net income

The write off will increase bad debt expense for the current period and reduce the allowance for doubtful accounts

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