Question

Recognition of expense for uncollected accounts receivable under different methods:

a. Direct write-off method: When the account is deemed uncollectible
b. Method for bad debts: When accounts age past a certain threshold
c. Both methods: At the time of identification of bad debt
d. Neither method: Only at the end of the fiscal year

Answer 1

The recognition of expense for uncollected accounts receivable varies by method: direct write-off when deemed uncollectible, and allowance method when accounts age past a certain threshold.

Step-by-step explanation:

The question refers to the recognition of expenses for uncollected accounts receivable under the direct write-off method and the allowance method for bad debts. Under the direct write-off method, an expense for uncollected accounts receivable is recognized when the account is deemed uncollectible, which usually occurs when all attempts to collect the debt have failed. Alternatively, the allowance method for bad debts, often termed the aging method, involves estimating uncollectible accounts at the end of each accounting period based on the age of the accounts receivable. Businesses usually classify receivables into age categories, and higher allowances are made for older receivables since they have a higher likelihood of becoming bad debts.