Lail Inc. accounts for bad debts using the allowance method. On June 1, Lail Inc

Question

Lail Inc. accounts for bad debts using the allowance method. On June 1, Lail Inc. wrote off Andrew Green's $2,500 account. Based on Lail's estimation, Andrew Green will never pay any portion of the balance in his account. What effect will this write-off have on Lail Inc.'s balance sheet at the time of the write-off?



a. An increase to stockholders' equity and a decrease to liabilities.

b. No effect.

c. An increase to assets and an increase to stockholders' equity.

d. A decrease to assets and a decrease to stockholders' equity.

Explanation / Answer

c. An increase to assets and an increase to stockholders' equity.

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