One Disadvantage of the Allowance Method (Over the Direct Write-Off

question 124

True/False

One disadvantage of the allowance method (over the direct write-off method)for recording uncollectible accounts is that it generally matches bad debt expense with the revenue it helped to generate.This is generally an advantage of the allowance method.

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Definitions:

Adverse Selection

A situation where asymmetric information results in high-risk individuals being more likely to participate in agreements or contracts, to the detriment of one party.

Moral Hazard

The situation where one party is more likely to take risks because another party bears the consequences.

Incentives

Rewards or penalties that motivate individuals or entities to act in certain ways.

Hazardous Jobs

Occupations that pose significant risks of injury, illness, or death as a result of the work environment or tasks involved.