Question

The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method

3. The write-off of a specific account does not affect net income.

Short answer

The correct answer is theallowance method.

Step-by-step solution

Introduction

Net income is the type of income an organization earns after deducting its necessary expenditure from the total revenue earned through the sale of goods and services for a fiscal year.

Reason for the correct answer

When an organization is using the allowance method to record its bad debt in the books of accounts, the calculated realizable amount does not affect the net income of the organization earned during the period of an accounting year.