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Q: How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method?
A: Any bad-debt expense as a result of the uncollected accounts receivable is associated with the original credit sales. [ But using the direct write-off method, companies would not record a bad-debt expense until a later period when they deem certain accounts receivable as uncollectible. Consequently, the bad-debt expense is inappropriately recorded against the revenue of sales from a later
period, mismatching the bad-debt expense with the revenue of the original credit sales. Using the direct write-off method, companies overstate the value of accounts receivable when certain accounts receivable have become uncollectible but have not been written off. ]
debnjerry|Points 49157|
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Asked 7/30/2013 2:56:01 PM
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