When comparing the direct write-off method and the allowance method of accounting for uncollectible receivables, a major difference is that the direct write-off method
A) uses a percentage of sales to estimate uncollectible accounts
B) is used primarily by large companies with many receivables
C) is used primarily by small companies with few receivables
D) uses an allowance account

Question

Quizplus · Accepted Answer

The direct write-off method is typically used by small companies with few receivables because it is simpler and does not require estimation of bad debts. The allowance method, which uses an allowance account and often estimates uncollectible accounts based on a percentage of sales, is more commonly used by larger companies with many receivables.

When Comparing the Direct Write-Off Method and the Allowance Method