Question

International, Inc. established an allowance for bad debts at the end of October. In November, International wrote off a $500 account receivable because payment was considered to be remote. What would be the effect of the $500 account receivable write-off on International's November financial statements? O Assets would decrease, liabilities would remain constant and retained earning would decrease. O Assets would remain constant; liabilities would increase and retained earnings would decrease. O No change would be made in total assets, liabilities or shareholder's equity. O Assets would decrease, liabilities would decrease and retained earnings would remain constant.

Answer 1

Answer : "A" : Assets would decrease, liabilities would remain constant and retained earnings would decrease

Reason :

Entry for 500$ account receivable write-off would be as follows :
S. No.	Account	Dr. ($)	Cr. ($)	Impact on Assets/Liabilities/Retained Earnings
1	Bad debt expense a/c ..Dr	500		Decrease in profit leading to decrease in retained earnings
	To Account Receivable a/c		500	Decrease in Assets

From the above entry it is evident that there is a decrease in assets and retained earnings with no change in the liabilities and hence the answer is "A".