The Direct Write-Off Method for Uncollectible Accounts Is Not Allowed

question 159

True/False

The direct write-off method for uncollectible accounts is not allowed by GAAP because it overstates the net realizable value of accounts receivable and violates the expense recognition principle.

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Definitions:

Balance Sheet Expenditures

Expenses that are reflected in the balance sheet, usually through an adjustment of assets or liabilities.

Commercial Substance

A concept that an economic transaction has a significant impact on the future cash flows of a company, justifying its recognition.

Plant Assets

Long-term tangible assets, such as buildings, machinery, and equipment, used in the operation of a business and not intended for resale.

Exchanges

Transactions where goods, services, or assets are traded between two parties without the primary use of money, also can refer to platforms that facilitate these trades.