When Comparing the Allowance Method of Accounting for Bad Debts

question 60

Multiple Choice

When comparing the allowance method of accounting for bad debts with the direct write-off method,which of the following is true?

• A) The direct write-off method is exact and also better illustrates the matching principle.
• B) The allowance method is less exact but it better illustrates the matching principle.
• C) The direct write-off method is theoretically superior.
• D) The direct write-off method requires two separate entries to write off an uncollectible account.

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Definitions:

Direct Labor

The wages and benefits paid to employees who are directly involved in the production process of a company's products or services.

Factory Overhead

Any costs related to the production process that are not directly tied to the creation of the product, such as utilities, maintenance, and wages for non-production staff.

Printing Department

The printing department is a specialized division within an organization or a dedicated facility that focuses on producing printed materials, such as documents, books, or promotional materials.

Job Order Cost System

An accounting method used to accumulate and assign costs to individual, distinct jobs or batches of products.