Question

QS 7-4 Distinguishing between allowance method and direct write-off method LO P1, P2 Indicate whether each statement best describes the allowance method or the direct write-off method. List Method 1. Estimates bad debts expense related to the sales recorded in that period. 2. Matches the estimated loss from uncollectible accounts receivable against the sales they helped create. Usually does not best match sales and expenses because bad debts expense is not recorded until an account becomes uncollectible, which usually occurs in a period after the credit sale. Bad debts expense is recorded in the period in which the related sales occur. 5. Bad Debts Expense is recorded when an account is determined to be uncollectible. 6. An adjusting entry is generally required at the end of each period to estimate bad debts.

Answer 1

	List	Method
1.	Estimates bad debts expense related to the sales recorded in that period.	Allowance method
2.	Matches the estimated loss from uncollectible accounts receivable against the sales they helped create.	Allowance method
3.	Usually does not best match sales and expenses because bad debts expense is not recorded until an account becomes uncollectible, which usually occurs in a period after the credit sale.	Direct write-off method
4.	Bad debts expense is recorded in the period in which the related sales occur.	Allowance method
5.	Bad debts expense is recorded when an account is determined to be uncollectible	Direct write-off method
6.	An adjusting entry is generally required at the end of each period to estimate bad debts.	Allowance method

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