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07.07.2022 - 11:03

What is the impact on the income statement when a company writes off an account receivable?

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What is the impact on the income statement when a company writes off an account receivable?

Answers (1)

Cade April 1, 2023 в 05:18

When a company writes off an account receivable, it means that they are acknowledging that the amount owed by a customer is unlikely to be collected. This results in a decrease in the company's accounts receivable balance and a corresponding decrease in its net income.
Specifically, the write-off is recorded as an expense on the company's income statement, which reduces its net income. The amount of the write-off is usually classified as a bad debt expense and is subtracted from the company's revenue to arrive at its net income.
Writing off a bad debt can also have an impact on other financial ratios and metrics that are used to evaluate a company's financial health. For example, the company's debt-to-equity ratio may increase if the write-off is significant enough to affect its overall financial position.
Overall, while writing off a bad debt may have a negative impact on a company's financial statements in the short term, it is often seen as a necessary step to maintain accurate accounting records and manage financial risk.

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