Which of the following statements is true of the direct write-off method? GAAP r

Question

Which of the following statements is true of the direct write-off method? GAAP requires public companies to follow the direct write-off method. It provides better matching of revenues with expenses. It results in more accurate net income than any other met hot It does not do a good job of matching of revenues with expenses. The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad debt expense. The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015. Net credit sales for the year amounted to $250,000. Using the allowance method, what will be the amount of Bad Debts Expense recorded as an adjusting journal entry for 2015?

Explanation / Answer

Ans 3 D It does not do a good job of matching of revenue and expenses In direct write off method when it is certain and clearly identified that the amount will not be collectible than only it is written off from the accounts It violates the matching principle, as the expenses associated with revenue are not charged in the same period. So there are various other methods like allowance for doubtful debts which nust be used ans 5 Opening Balance Alowance for Doubtful debts 2000 Company estimates 2% of credit sales to be uncollectibe 250000*2% $5,000 So the ending balance of Allowance for doubtful debt is (as in this case ending balance will be $5000 which is estimated bad debts $5,000 As it has opening of $2000 creditso adjusting entry will be made only for $3000 to make the final figure as $5000 Ans a $5000 Dear student please don’t post multiple question under one question I have anserwed 3 and 5th

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