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What does a write-off of a customer's account represent, and when is it appropriate?
AA routine month-end adjustment applied to every overdue customer balance
BA temporary suspension of the debt that is automatically reversed next period
CA reclassification of the debt from a current to a non-current asset
DForgiveness of a debt, done only when the company is certain the customer can never pay
Answer & Solution
Correct answer: D. Forgiveness of a debt, done only when the company is certain the customer can never pay
1. A write-off is forgiveness of a customer's debt.
2. It is made only when the company is absolutely certain the customer can never pay, such as death or bankruptcy.
3. It is not a routine entry on every overdue balance, so that option is wrong.
4. It is not a temporary suspension nor a reclassification, so those options are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4 "Uncollectible Accounts", p.137_
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