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Question 12 (4 points) The direct write-off method of determining bad debt expense is subjective and can be manipulated by ma
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True.
Under the direct write off method, Bad debt expense is not recognized until it has been determined that an account is uncollectible. So there is no end of period adjustment entry to estimate bad debt expense. When an account is to be written off the bad debt expense is debited and Accounts Receivable is credited.
But there are disadvantage to using this method: First the matching principle will be violated because loss will be booked in the month different month as sales. Second the amount of bad debt expense recognized in a given period can be manipulated by management. Third the amount of Accounts Receivable on the balance sheet overstates the amount of cash actually expected to be collected.
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