When is it acceptable to use the direct write-off method to account for uncollectible accounts?
A) When the expected bad debts are significant
B) When the company pledges its accounts receivables
C) When the expected bad debts are not significant
D) It is never acceptable to use the direct write-off method under GAAP
E) When the company sells its accounts receivables

Question

Quizplus · Accepted Answer

The direct write-off method can be used when the expected bad debts are not significant. This method is not preferred under GAAP, but may be used for tax purposes or small businesses with minimal receivables. Option A is incorrect because significant expected bad debts would warrant the use of the allowance method. Option B is incorrect because pledging accounts receivable would not affect the method used to account for uncollectible accounts. Option D is incorrect because while not preferred, the direct write-off method is allowed under GAAP. Option E is incorrect because selling accounts receivable would not affect the method used to account for uncollectible accounts.

When Is It Acceptable to Use the Direct Write-Off Method