Multiple Choice
Under the direct write-off method of accounting for uncollectible accounts, how are bad debts recorded?
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7. Receivables and Investments
Net Accounts Receivable: Direct Write-off Method
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Under the direct write-off method, accounts receivable are reported at:
A
Their full outstanding amount, without deducting any allowance for doubtful accounts
B
Historical cost less accumulated depreciation
C
Market value as of the balance sheet date
D
Net realizable value, after deducting an allowance for doubtful accounts
Verified step by step guidance1
Understand the direct write-off method: This method records bad debts only when they are deemed uncollectible, rather than estimating doubtful accounts in advance. It does not use an allowance for doubtful accounts.
Review how accounts receivable are reported under this method: Accounts receivable are shown at their full outstanding amount because no allowance for doubtful accounts is deducted.
Compare this reporting method to other approaches: For example, under the allowance method, accounts receivable are reported at net realizable value, which includes a deduction for estimated doubtful accounts.
Clarify why the direct write-off method does not adjust for doubtful accounts: This method is simpler but less accurate in matching expenses to revenues, as it does not anticipate bad debts.
Conclude that under the direct write-off method, accounts receivable are reported at their full outstanding amount, without deducting any allowance for doubtful accounts.
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