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

Question

Quizplus · Accepted Answer

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.

Two Methods of Accounting for Uncollectible Accounts Are the