Multiple Choice
In the context of financial accounting, the total amount still owed on a house is referred to as which of the following?
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7. Receivables and Investments
Net Accounts Receivable: Direct Write-off Method
Multiple Choice
Under the direct write-off method of accounting for uncollectible accounts, when is bad debt expense recognized?
A
When cash is collected from the customer
B
When a specific account is determined to be uncollectible
C
At the end of each accounting period based on an estimate
D
When the sale is made on account
Verified step by step guidance1
Understand the direct write-off method: This method recognizes bad debt expense only when a specific account is determined to be uncollectible, rather than estimating uncollectible accounts at the end of each accounting period.
Review the timing of bad debt recognition: Under this method, bad debt expense is not recorded at the time of the sale or based on an estimate. It is recorded only when there is clear evidence that a specific account will not be collected.
Compare with other methods: Unlike the allowance method, which uses estimates to recognize bad debt expense periodically, the direct write-off method waits until the uncollectibility of a specific account is confirmed.
Identify the correct scenario: The correct timing for recognizing bad debt expense under the direct write-off method is when a specific account is determined to be uncollectible, not when cash is collected, at the end of the period, or at the time of sale.
Apply the concept: In practice, this method is simpler but may not comply with the matching principle in accrual accounting, as expenses may not align with the revenue they are associated with.
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