Give and Explain the Current Test Established in Katz

question 31

Essay

Give and explain the current test established in Katz.How does this test differ from a previous test established in Olmsted? Why was this change in standards important?

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Definitions:

Direct Write-off Method

A method where uncollectible accounts receivable are written off directly against income at the time they are deemed to be uncollectible.

Uncollectible Accounts

Accounts receivable deemed uncollectible by a business, representing money owed by customers that is unlikely to be paid and usually written off as an expense.

Expense Recognition Principle

An accounting guideline stating that expenses should be recorded in the same period as the revenues they help to generate.

Direct Write-off Method

An accounting method for uncollectible receivables where the specific account's balance is directly removed from accounts receivable.