explain why the allowance method is used for financial statement purposes rather than the direct write-off...

explain why the allowance method is used for financial statement purposes rather than the direct write-off method.

Solutions

Expert Solution

explain why the allowance method is used for financial statement purposes rather than the direct write-off method

Answer: Under Allowance method, an estimate of the future bad debts are assessed and are provided against the collectibles. However, incase of Direct Write off method, a bad debt is charged as expense in the Income Statement as soon as it is evident that the collectibles are defaulted and are not receoverable.

Under the Allowance method, the assessment of estimate is made immediately after the sale and hence any provision or adjustment is made immediately in the respective financial year; However, incase of Direct Write off method, the expense is considered only in the financial year in which the evidence is established.

Going by the Concept of Prudence in accounting, it is advised to assess the risk profile of assets (collectibles) and provision be considered in books to reflect the correct accounting reflection, on periodic basis. Hence, Allowance method is used rather than the direct write off method.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

why is the allowance method preferred over the direct write off method? Explain in detail.

What is the difference between direct write-off method and allowance method? Direct write-off method, a company...

What is the difference between direct write-off method and allowance method? Direct write-off method, a company does not anticipate bad debt expense. The allowance method is preferred over the direct write-off method because the accounts receivable will be presented on the balance sheet with a reduction called the allowance for doubtful accounts. Jan 1. At the beginning of the year, AA prepared the Aging of Accounts Receivable Schedule. Complete the table. Customer Amount Current Number of Days Past Due (Not...

1. Why is the allowance method preferred over the direct write-off method of accounting for uncollectible...

1. Why is the allowance method preferred over the direct write-off method of accounting for uncollectible receivables? a. The allowance method uses estimates. b. The allowance method always accurately predicts the portion of receivables that will not be collected. c. The allowance method improves the matching of bad debt expense and revenues. d. The allowance method will provide higher net income over time. 2. Which of the following is a characteristic of a perpetual inventory system? a. Physical inventory counts...

the diference between the Direct Write off method and Allowance Method of writing off a receivable?!

Discuss the differences between the allowance method and the direct write-off method

Discuss the differences between the allowance method and the direct write-off method for recording uncollectible accounts. Which of the two is acceptable under financial accounting rules?

What is the difference between direct write-off method and allowance method?

Explain the differences between the Direct Write- off Method and Allowance Method. Answer these questions: which...

Explain the differences between the Direct Write- off Method and Allowance Method. Answer these questions: which method is more accurate? which method is better at matching?

Compare and contrast the direct write-off method and the allowance method for bad debts. At a...

Compare and contrast the direct write-off method and the allowance method for bad debts. At a minimum, please consider the following in your answer: When is the expense for uncollected accounts receivable recognized under each method? Why is the direct write-off method not considered to follow generally accepted accounting

What is the difference between the allowance method and the direct write-off method of accounting for...

What is the difference between the allowance method and the direct write-off method of accounting for uncollectible accounts and what are the advantages of using each method? Explain.

Using your own words, explain how the direct write-off method and the allowance method applied in...

Using your own words, explain how the direct write-off method and the allowance method applied in accounting for uncollectible accounts receivables? Give me an explanation of the difference between revenue expenditures, and capital expenditures, and how they are recorded in the accounting system using your own words. Type or paste question here

Subjects