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4. The direct write-off method for uncollectible accounts violates the GAAP matching principle, and is primarily...

4. The direct write-off method for uncollectible accounts violates the GAAP matching principle, and is primarily used by smaller, nonpublic companies. TRUE FALSE

5. The Allowance for Bad Debts is a contra asset account to Accounts Receivable. TRUE FALSE

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Answer #1
  • Question 4

The statement is TRUE.

>Direct Write Off method violates the Matching Principal (GAAP).

>This is because, under this method, (uncollectible) expense is recorded and recognised which might belong to the sales recorded in earlier years.

>Under this, Bad Debt expense account is debited and Accounts receivable is credited to write off the uncollectible amount.

  • Question 5

>The statement is TRUE.

>Allowance account is a contra asset account to Accounts receivables.

>This is because generally Assets have debit balance, but Allowance account has to have Credit balance. Accounts with credit balances are to be shown on under Liabilities or Equity Section of Balance Sheet, but Allowance account is shown on ASSET side as a deduction from Accounts receivables.

>It reduces the Accounts receivables to be presented in Balance Sheet on Asset Side.

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