Which method delays recognition of bad debt until the...

Which method delays recognition of bad debt until the specific customer accounts receivable is identified?
A. income statement method
B. balance sheet method
C. direct write-off method
D. allowance method

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Key Concepts

Direct Write-Off Method

The Direct Write-Off Method is an accounting approach where a bad debt expense is recorded only when a specific account is deemed uncollectible. This method delays the recognition of bad debt until an identifiable customer account is determined to be irrecoverable, which can result in a timing mismatch between the recognition of revenue and the associated expense.

Allowance Method

The Allowance Method is an alternative approach to recording bad debts, where an estimate of uncollectible accounts is made in advance and recorded as an allowance against accounts receivable. This method aligns with the matching principle by anticipating bad debt expense in the period when the related revenue is recognized, rather than waiting for a specific account to default.

Bad Debt Expense

Bad Debt Expense represents the cost associated with accounts receivable that are not expected to be collected. It is an essential component of financial reporting under accrual accounting, ensuring that the receivables reported on the balance sheet accurately reflect the amount likely to be converted into cash.

Transcript

00:01 Okay, so let's start with the meaning of credit sale.

00:07 Because to understand the solution for current question, we need to have understanding that what is the meaning of credit sale.

00:13 So we will start with our example as usual.

00:22 So let's suppose there is xyz company and there is mr.

00:31 B.

00:33 Now, xyz company has sold certain goods of 10 ,000.

00:46 Dollars to mr.

00:47 B.

00:48 However, mr.

00:49 B is a trustworthy customer.

00:52 So mr.

00:53 B said that i will pay you at a later point in time.

00:59 Let's say within two months.

01:03 So this whole transaction will be known as credit sale.

01:12 Okay.

01:13 This whole transaction will be known as credit sale because the goods has been sold on credit basis.

01:20 The customer will pay at a later point in time.

01:23 Okay.

01:24 But now what happens? let's say suppose.

01:30 So out of this transaction two account will be affected, first of all sales account, by sales account because xyz company has sold certain goods so it will so that arnachian will increase its revenue will increase its sales so that is why sales account will be affected.

01:50 Followed by that we will have a different account effect that is debtors...

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