The Direct Write-Off Method of Accounting for Bad Debts

question 206

Multiple Choice

The direct write-off method of accounting for bad debts

• A) uses an allowance account.
• B) uses a contra-asset account.
• C) does not require estimates of bad debt losses.
• D) is the preferred method under generally accepted accounting principles.

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Definitions:

Quarterly Compounded

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, done every quarter.

Effective Rate

An adjustment of the nominal interest rate on a loan or financial product to reflect an annual compound interest rate, with payments made at the end of the period.

Periodic Rate

The rate of interest charged or earned over a shorter, specified interval of time, often related to the compounding period.

Compounded Monthly

Refers to interest on a loan or investment calculated monthly, adding to the principal sum so that each successive calculation includes the previous month's interest.