Which of the following is a disadvantage of the direct write-off method of accounting for bad debts expense?
A) The direct write-off method requires complex computation for the estimation of bad debts expense.
B) The direct write-off method requires extra adjusting entries to write off bad debts.
C) The direct write-off method is not consistent with the accrual basis of accounting.
D) The direct write-off method requires additional journal entries to be passed through Allowance for Doubtful Accounts.

Question

Quizplus · Accepted Answer

The direct write-off method is not consistent with the accrual basis of accounting because it delays the recognition of bad debt expense until the specific customer account is identified as uncollectible, rather than estimating the amount of uncollectible accounts in advance and recording it as an allowance for doubtful accounts. This can lead to distorted financial statements and misrepresentation of the company's true financial position. Additionally, the direct write-off method does not require complex computation or extra adjusting entries, and does not involve passing journal entries through Allowance for Doubtful Accounts.

Which of the Following Is a Disadvantage of the Direct