When is the direct write-off method for uncollectible accounts typically used?

• A. An account is determined to be uncollectible and is written off at that time.
• B. All accounts receivable are expected to be collected.
• C. Bad debts are estimated at the end of each accounting period.
• D. The company uses the allowance method for doubtful accounts.

Answer: (A)

Verified step by step guidance

1. Understand the concept of the direct write-off method: This method is used to account for uncollectible accounts by directly writing off the specific account when it is determined to be uncollectible, rather than estimating bad debts in advance.
2. Compare the direct write-off method to the allowance method: The allowance method involves estimating bad debts at the end of each accounting period and creating an allowance for doubtful accounts, whereas the direct write-off method does not involve estimation and only acts when an account is deemed uncollectible.
3. Identify the key characteristic of the direct write-off method: It is typically used when a company determines that a specific account is uncollectible and writes it off at that time, rather than making periodic estimates of bad debts.
4. Analyze the options provided in the problem: The correct answer aligns with the direct write-off method's characteristic of writing off accounts when they are determined to be uncollectible.
5. Conclude that the direct write-off method is not used for estimating bad debts or when all accounts receivable are expected to be collected, nor is it related to the allowance method for doubtful accounts.