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.

---

Definitions:

Negative Externality

A cost imposed on a third party who is not involved in the production or consumption of a good or service.

Loud Music

High-decibel sound from musical instruments or audio systems, often considered disturbing or a nuisance in certain contexts.

Communicable Diseases

Illnesses caused by viruses, bacteria, or other microorganisms that can be transferred from person to person, directly or indirectly.

Signaling Mechanism

A signaling mechanism is a method by which one party conveys information about itself or its intentions to another party, often used in markets where information asymmetry exists.