The two methods of accounting for uncollectible accounts receivable are ________.
A) the direct write-off method and the liability method
B) the asset method and the sales method
C) the allowance method and the liability method
D) the allowance method and the direct write-off method

Question

Quizplus · Accepted Answer

The two methods of accounting for uncollectible accounts receivable are the allowance method and the direct write-off method. The direct write-off method is used when a specific account is determined to be uncollectible and is written off as a bad debt expense. The allowance method estimates the amount of uncollectible accounts and creates a contra asset account, Allowance for Doubtful Accounts, to reduce the accounts receivable balance to its estimated net realizable value. This method is preferred by generally accepted accounting principles (GAAP) because it matches expenses with revenue and provides a more accurate representation of the company's financial position.

The Two Methods of Accounting for Uncollectible Accounts Receivable Are