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Question
Indicate whether each of the following items is a characteristic of the allowance method and/or the direct write-off method by placing an X in the appropriate column. If an item is a characteristic of both methods, place an X in both columns.
| Allowance Method | Direct Write-off Method | |
| a. Conforms to the expense recognition (matching) principle. | ||
| b. Not used very often for external financial reporting. | ||
| c. Required for tax purposes. | ||
| d. Required by IFRS. | ||
| e. Reports receivables at their net realizable value. | ||
| f. May overstate assets. | ||
| g. Distorts net income in the period of the sale as well as in later periods when bad debts are discovered. | ||
| h. Estimates amount of uncollectibles using percentage of net sales or an aging of receivables. | ||
| i. Bad Debt Expense is debited when the company estimates its uncollectible accounts. | ||
| j. Requires an adjusting entry that uses a contra account. | ||
| k. Accounts Receivable is credited when a customer account is written off. | ||
| l. Bad Debt Expense is debited when a customer account is written off. | ||
| m. The write off of a customers account affects only balance sheet accounts. | ||
| n. Decreases net income when an uncollectible account is written off. | ||
| n. Not considered a generally accepted accounting method. |
Answer
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