Question

The two approaches to determining the credit loss expense on accounts receivable are the direct write-off method and the allowance method. Indicate the method that corresponds to each description below by selecting the appropriate circle.

Description	Direct write-off	Allowance
1. This method has the tax advantage of anticipating deductions.
2. This approach debits credit loss expense and credits accounts receivable at the time the uncollectibility of a specific account is established.
3. This method attempts to match credit loss expense with the related revenue and to determine the net amount expected to be collected from accounts receivable.
4. Based on an estimate of uncollectible accounts for a period, credit loss expense is debited and an allowance account is credited.
5. A contra-asset account is created and deducted from accounts receivable on the balance sheet.
6. This method is prohibited under GAAP, but is acceptable for tax purposes.

Answer 1

1. This method has the tax advantage of anticipating deductions.	Allowance method
2. This approach debits credit loss expense and credits accounts receivable at the time the uncollectibility of a specific account is established.	Direct write-off method
3. This method attempts to match credit loss expense with the related revenue and to determine the net amount expected to be collected from accounts receivable.	Allowance method
4. Based on an estimate of uncollectible accounts for a period, credit loss expense is debited and an allowance account is credited.	Allowance method
5. A contra-asset account is created and deducted from accounts receivable on the balance sheet.	Allowance method
6. This method is prohibited under GAAP, but is acceptable for tax purposes	Direct write-off