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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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If a company uses the direct write-off method of accounting for bad debts,

a. it will report accounts receivable on the balance sheet at their net realizable value.

b. it is applying the matching principle.

c. it will reduce the Accounts Receivable account at the end of the accounting period for estimated uncollectible accounts.

d. it will record bad debt expense only when an account is determined to be uncollectible.

To determine

Revenue recognition:

Revenue recognition is referred to the time of recognition of revenue by the business firms in the books for stating the respective revenue in the statement of profit and loss in the respective year and time.

To select:

The best option among the four options for the treatment of direct write-off of accounting for bad debts.

Explanation

Option (d)

In accounting, under direct method trade receivable are written off in bad debts only in case when it is sure that the amount will not be recovered from the customers.

In case, there is uncertainty with respect to receivable then in that case, a provision is created for an amount equal to the amount of uncertainty from customers which is shown by netting off from trade receivable in the notes to accounts and the net amount is reflected on the face of the balance sheet...

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