Under the direct write-off method of accounting for uncollectible accounts, when is bad debt expense recognized?

• A. When cash is collected from the customer
• B. When a specific account is determined to be uncollectible
• C. At the end of each accounting period based on an estimate
• D. When the sale is made on account

Answer: (B)

Verified step by step guidance

1. Understand the direct write-off method: This method recognizes bad debt expense only when a specific account is determined to be uncollectible, rather than estimating uncollectible accounts at the end of each accounting period.
2. Review the timing of bad debt recognition: Under this method, bad debt expense is not recorded at the time of the sale or based on an estimate. It is recorded only when there is clear evidence that a specific account will not be collected.
3. Compare with other methods: Unlike the allowance method, which uses estimates to recognize bad debt expense periodically, the direct write-off method waits until the uncollectibility of a specific account is confirmed.
4. Identify the correct scenario: The correct timing for recognizing bad debt expense under the direct write-off method is when a specific account is determined to be uncollectible, not when cash is collected, at the end of the period, or at the time of sale.
5. Apply the concept: In practice, this method is simpler but may not comply with the matching principle in accrual accounting, as expenses may not align with the revenue they are associated with.