The Direct Write-Off Method of Accounting for Bad Debts

question 177

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 IFRS.

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Definitions:

Carrying Cost

The total cost of holding inventory, including storage, insurance, taxes, and opportunity costs.

Terms Of Sale

Conditions agreed upon by the buyer and seller covering payment, delivery, and warranties, which define the responsibilities of each party in a transaction.

Inventory

The raw materials, work-in-process products, and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.

Credit

The ability of a borrower to obtain funds from a lender under agreed conditions.