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 factors its accounts receivable.
C)When the company uses the percentage of sales method.
D)When the expected bad debts are not significant.

Question

Quizplus · Accepted Answer

The direct write-off method is only acceptable when the expected bad debts are not significant. This is because the method does not allow for the matching principle to be followed, as bad debts are not recorded until they are actually deemed uncollectible, which could be in a different accounting period than when the related sale was made. As such, this method is not appropriate when significant bad debts are expected, as it would result in a distortion of the company's financial statements.

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