A statement of cash flows is being prepared using accrual based information. In calculating cash receipts from customers' bad debts written off, when the direct write- off method is used is:

Question

Quizplus · Accepted Answer

When using the direct write-off method, bad debts expense is recognized when a specific account receivable is deemed uncollectible and is written off. This means that the bad debt expense is not recognized until the cash has already been received, so it is not added to accrual-basis revenue or shown as a cash outgoing. Instead, it is subtracted from accrual-basis revenue to arrive at the cash receipts from customers.

A Statement of Cash Flows Is Being Prepared Using Accrual