Chapter 9, Problem 4QS

Distinguishing between allowance method and direct write-off method

P1 P2

The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method.

1. No attempt is made to 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. Sales and any bad debt expense are usually not recorded in the same period; thus, proper matching (of revenue and expense recognition) does not consistently occur.

6. Requires a company to estimate bad debts expense related to the sales recorded in that period.