Under GAAP, a Company May Freely Choose Whether to Use

question 36

True/False

Under GAAP, a company may freely choose whether to use the percentage of completion method, or the completed contract method, of accounting for long-term contracts. Neither method is preferred by the FASB.

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Definitions:

Allowance Method

An accounting technique used to account for bad debts by estimating uncollectible accounts at the end of each period.

Direct Write-off Method

An accounting method where uncollectible debts are written off to expense only when they are determined to be uncollectible.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.

Receivables

Amounts owed to a company by its customers arising from the sale of goods or services on credit.