Question

Two methods of accounting for uncollectible accounts are the A. direct write-off method and the allowance method.B. allowance method and the accrual method.C. allowance method and the net realizable method.D. direct write-off method and the accrual method

Answer 1

Answer:

Option A. direct write-off method and the allowance method

Explanation:

The allowance method it's when the company at the end of each accounting year register an entry to anticipate losses during the next year, this method works by an estimation of losses each year.

By the Direct write-off method the company doesn't anticipate the losses, it register it at the moment it occurs.

Answer 2

Answer:

The correct answer is A: direct write-off method  and the allowance method

Explanation:

Unfortunately, some sales on account may not be collected. Customers go broke, become unhappy and refuse to pay, or may generally lack the ethics to complete their half of the bargain. It is necessary to establish an accounting process for measuring and reporting these uncollectible items. Uncollectible accounts are frequently called “bad debts.”

There are two methods of accounting to manage uncollectable accounts:

1- Allowance method

2- Direct Write-off Method

2- Under this method, there is no allowance account. An account receivable is written-off directly to expense only after the account is determined to be uncollectible. This method is required for income tax purposes. The direct write-off method is easy to operate as it only requires that specific debts are written off as they are identified with a simple journal. The problem with the method, however, is that it does not comply with the matching principle, in that revenue might be recorded in one period, when the customer is invoiced, whereas the expense of writing off the uncollectible amount is recorded in a completely different period when the amount is identified as irrecoverable.