Recognizing revenue before the seller collects cash requires estimating the amount of uncollectible accounts with reasonable accuracy.Both U.S.GAAP and IFRS require the
A)direct method for uncollectible accounts, only.
B)direct charge off method for uncollectible accounts, only.
C)allowance method for uncollectible accounts, only.
D)allowance method and the direct charge off method for uncollectible accounts.
E)indirect method for uncollectible accounts, only.

Question

Quizplus · Accepted Answer

Both US GAAP and IFRS require the allowance method and the direct charge-off method for recognizing uncollectible accounts. The allowance method involves estimating potential bad debts, creating a contra-account to accounts receivable (allowance for doubtful accounts), and adjusting it periodically as necessary. The direct charge-off method involves writing off specific uncollectible accounts as they are identified. Together, these methods allow for reasonable estimation of uncollectible accounts and accurate recognition of revenue before the seller collects cash.

Recognizing Revenue Before the Seller Collects Cash Requires Estimating the Amount