Under the direct write-off method of accounting for uncollectible accounts, how are bad debts recorded?

• A. Bad debts are recorded only when an account is determined to be uncollectible.
• B. Bad debts are recorded when the sale is made.
• C. Bad debts are estimated and recorded at the end of each accounting period.
• D. Bad debts are never recorded under this method.

Answer: (A)

Verified step by step guidance

1. Understand the direct write-off method: This method records bad debts only when an account is determined to be uncollectible, rather than estimating bad debts in advance.
2. Review the timing of recognition: Under this method, bad debts are recognized as an expense in the period when the specific account is identified as uncollectible, not at the time of the sale or at the end of the accounting period.
3. Compare with other methods: Unlike the allowance method, which estimates bad debts at the end of each accounting period, the direct write-off method does not involve estimation or the creation of an allowance for doubtful accounts.
4. Consider the implications: The direct write-off method may not comply with the matching principle, as expenses (bad debts) are recognized in a different period than the revenue they relate to.
5. Conclude the recording process: Bad debts are recorded by debiting the Bad Debt Expense account and crediting Accounts Receivable for the specific uncollectible account.