Owens Company Uses the Direct Write-Off Method of Accounting for Uncollectible

question 64

Essay

Owens Company uses the direct write-off method of accounting for uncollectible accounts receivable. On December 6, Year 1, Owens sold $6,300 of merchandise to the Valley Company. On August 8, Year 2, after numerous attempts to collect the account, Owens determined that the account of the Valley Company was uncollectible.
a. Prepare the journal entry required to record the transactions on August 8.
b. Assuming that the $6,300 is material, explain how the direct write-off method violates the expense recognition (matching) principle in this case.

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Definitions:

Verified

Confirmed as true, accurate, or to meet a particular standard.

Predatory Pricing

The strategy of setting prices at a very low level with the intent to eliminate competition, considered illegal in many jurisdictions.

Price Discrimination

The strategy of selling the same product to different customers at different prices based on their willingness to pay.

Resale Price Maintenance

A practice where a manufacturer and its distributors agree on the minimum price at which a product can be sold to consumers.