Question

Waren’s policy on bad debts is to write-off bad accounts when identified and to use the Allowance Method, instead of the direct write-off method?. True False

Answer 1

The statement, "Waren’s policy on bad debts is to write-off bad accounts when identified and to use the Allowance Method, instead of the direct write-off method" is True.

• The demerit of the direct write-off method is that it diminishes the usefulness of the Income Statement and Balance Sheet.
• On the basis of generally accepted accounting principles, allowance method is better than direct write-off method as it matches expenses with sales of the same period.
• Direct write-off method does not adhere to matching principle of accounting where one account matches with the another.

Answer is True.