When Is It Acceptable to Use the Direct Write-Off Method

question 18

Multiple Choice

When is it acceptable to use the direct write-off method to account for uncollectible accounts?

• A) When the expected bad debts are significant
• B) When the company pledges its accounts receivables
• C) When the expected bad debts are not significant
• D) It is never acceptable to use the direct write-off method under GAAP
• E) When the company sells its accounts receivables

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Definitions:

Minimum Cash Balance

The lowest amount of cash that a company aims to hold in its accounts to ensure financial stability and meet its operational needs.

Cash Budget

A financial plan that projects future cash flow by estimating incoming cash receipts and outgoing cash payments.

Loans Outstanding

The total amount of borrowed money that is still owed to lenders.

Budgeted Purchases

The estimated amount of purchases a company plans to make in a future period, often part of a budgeting process.