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:

Business Entity Assumption

An accounting principle that treats a business as an independent entity separate from its owners for accounting and legal purposes.

Business's Assets

Resources owned by a company that have economic value and can be used to meet debts, commitments, or legacies.