Two methods of accounting for uncollectible accounts are the
A) allowance method and the accrual method.
B) allowance method and the net realizable method.
C) direct write-off method and the accrual method.
D) direct write-off method and the allowance method.

Question

Quizplus · Accepted Answer

The direct write-off method and the allowance method are the two methods of accounting for uncollectible accounts. The direct write-off method records bad debts as an expense when they are actually deemed uncollectible. The allowance method, on the other hand, estimates the amount of bad debts and records it as an adjusting entry to the allowance for doubtful accounts. The direct write-off method is only applicable for tax purposes and is not in accordance with generally accepted accounting principles (GAAP). The allowance method is the preferred method for financial reporting, as it matches expenses with revenues and provides a more accurate picture of a company's financial position.

Two Methods of Accounting for Uncollectible Accounts Are the