Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Net Accounts Receivable: Direct Write-off Method

Financial Accounting

7. Receivables and Investments

Net Accounts Receivable: Direct Write-off Method

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Multiple Choice

Under the direct write-off method of accounting for uncollectible accounts, when is bad debt expense recognized?

When cash is collected from the customer

When a specific account is determined to be uncollectible

At the end of each accounting period based on an estimate

When the sale is made on account

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Verified step by step guidance

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.