The Direct Write-off Method for bad debts:
A)Removes a customer's uncollectible account receivable and records a bad debt expense and is recorded at the time a specific customer's account becomes uncollectible
B)Complies with GAAP
C)Estimates bad debt expense and establishes an allowance or reserve for uncollectible
D)None of these

Question

Quizplus · Accepted Answer

The direct write-off method removes a specific customer's uncollectible account receivable and records a bad debt expense at the time it becomes uncollectible. It does not comply with GAAP as it violates the matching principle by recognizing bad debt expense in a different period from when the related sale was made. The allowance method estimates bad debt expense and establishes an allowance or reserve for uncollectible.

The Direct Write-Off Method for Bad Debts