Question

Which of the following is a correct statement?

Multiple Choice

• Writing off an uncollectible account under the allowance method decreases net income.

• Writing off an uncollectible account under the direct write-off method does not affect net income.

• Estimating uncollectible accounts expense improves the matching of revenues and expenses.

• All of these are correct statements.

Answer 1

Answer :

Correct answer is:

Estimating uncollectible accounts expense improves the matching of revenues and expenses.

Explanation:

Allowance method which involves estimating uncollectible accounts and providing for the same improves matching of revenues and expense. If direct write-off method is used, it is possible that credit given in one period has to be written off in another period and as such mis-match between revenue and expenses would occur.

As such option C is correct.

Option A is incorrect since writing off an uncollectible account under the allowance method does not decrease net income. Under allowance method writing off an uncollectible account is debited to Allowances. As such writing off an uncollectible account does not impact net income.

Option B is incorrect since writing off an uncollectible account under the direct write-off method decreases net income.

Since Options A and B are incorrect, option D is incorrect.