Answered: The direct write-off method is…

The direct write-off method is generally not acceptable because it: a) Overstates expenses b) Understates accounts receivable c) Does not match expenses with revenues d) Is too complex

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle

Section: Chapter Questions

Problem 7CYBK

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The direct write-off method is generally not acceptable because it:

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Which of the following is a limitation of the direct write-off method of accounting for uncollectible? The direct write-off method overstates assets on the balance sheet. The direct write-off method does not match expenses against revenue very well. The direct write-off method does not set up an allowance for uncollectible. All of the above
The allowance for doubtful accounts is an example of a(n) Group of answer choices expense account control account adjunct account contra account
The direct write-off method records bad debt expense when an account is determined to be uncollectible. OTrue False
Of what merit is the contention that the allowance methodlacks the objectivity of the direct write-off method? Discussin terms of accounting’s measurement function.
Provide two inherent risk factors in the revenue cycle and identify the accounts that are likely to be overstated or understated and explain why.
The preferred method of accounting for uncollectible accounts is ? A) net realizable method. B) actual method. C) allowance method. D) direct write-off method.
A misstatement related to which of the following assertions means the dollar amount of the account balance is not correct. Existence All of the choices have that result Valuation Completeness
Indicate whether each statement best describes the allowance method or the direct write-off method. List 1. Does not predict bad debts expense. 2. Accounts receivable on the balance sheet is reported at net realizable value. 3. The write-off of a specific account does not affect net income. 4. When an account is written off, the debit is to Bad Debts Expense. 5. Usually does not best match sales and expenses because bad debts expense is not recorded until an account becomes uncollectible, which usually occurs in a period after the credit sale. 6. Estimates bad debts expense related to the sales recorded in that period. Method Allowance Direct write-off
Under the allowance method, the write-off of an uncollectible account ________. Group of answer choices decreases total assets has no effect on the allowance for uncollectible accounts increases expenses has no effect on net income
When the allowance method of recognizing bad debt expense is used, the allowance for doubtful accounts decrease when Specific account receivable is collected Account previously written off is collected Account previously written off becomes uncollectible Specific uncollectible account is written off
Give an example of an error or fraud that would misstate financial statements to affect the accounts as follows, taking each case independently. (Note: “Overstate” means the account has a higher value than would be appropriate under GAAP and “understate” means it has a lower value.)a. Overstate one asset; understate another asset.b. Overstate an asset; overstate stockholders’ equity.c. Overstate an asset; overstate revenue.d. Overstate an asset; understate an expense.e. Overstate a liability; overstate an expense.f. Understate an asset; overstate an expense.g. Understate a liability; understate an expense.
Which following statement is a correct statement about the direct write-off method for calculating credit loss expense? A. It is in accordance with GAAP. B. It uses an allowance for credit losses account. C. It tends to understate accounts receivable on the balance sheet. D. It recognizes credit loss expense when a specific account is determined to be uncollectible.