Asked by stephan vailes on May 26, 2024
Verified
Two methods of accounting for uncollectible accounts are the
A) direct write-off method and the allowance method
B) allowance method and the accrual method
C) allowance method and the net realizable method
D) direct write-off method and the accrual method
Allowance Method
An accounting technique used to account for bad debts by estimating uncollectible accounts at the end of each period.
Direct Write-off Method
An accounting method where uncollectible debts are written off to expense only when they are determined to be uncollectible.
- Compare and contrast the allowance and direct write-off methods for handling uncollectible receivables in accounting.
Verified Answer
HK
Harshit KothariMay 29, 2024
Final Answer :
A
Explanation :
The direct write-off method is a method of accounting for uncollectible accounts where a specific account receivable is written off when it is deemed uncollectible. This method is often used by small businesses or businesses with a small volume of bad debts.
The allowance method is a method of accounting for uncollectible accounts where an estimate is made of the total amount of accounts receivable that will not be collected. This estimate is recorded as an allowance for doubtful accounts and is used to adjust the balance of accounts receivable on the balance sheet. This method is used by larger businesses or businesses with a significant amount of bad debts.
Both methods are acceptable under Generally Accepted Accounting Principles (GAAP) but the allowance method is preferred because it provides a more accurate representation of the company's financial position.
The allowance method is a method of accounting for uncollectible accounts where an estimate is made of the total amount of accounts receivable that will not be collected. This estimate is recorded as an allowance for doubtful accounts and is used to adjust the balance of accounts receivable on the balance sheet. This method is used by larger businesses or businesses with a significant amount of bad debts.
Both methods are acceptable under Generally Accepted Accounting Principles (GAAP) but the allowance method is preferred because it provides a more accurate representation of the company's financial position.
Learning Objectives
- Compare and contrast the allowance and direct write-off methods for handling uncollectible receivables in accounting.
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