CFA Practice Question

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CFA Practice Question

A company that uses the direct write-off method recognizes uncollectible accounts expense as ______.

A. a percentage of net sales during the period
B. a percentage of net credit sales during the period
C. indicated by aging the accounts receivable at the end of the period
D. specific accounts receivable determined to be worthless
Correct Answer: D

User Contributed Comments 5

User Comment
azramirza Can someone please explain this??
olagbami @ write-off means there's no provision. uncollectibles are written off once they are recognized or determined to be bad/worthless
azramirza thanks olagbami...god bless..
jonan203 actually, direct write off means that each business/person who buys from the company on credit has their own account with the firm

a/r - company #1
a/r - company #2
a/r - company #3
a/r - company #N

say company #3 defaults on the firm, under direct write off method, only the remaining balance in "a/r - company #3" will be written off to bad debt expense

no provision is made for potential losses, and losses are only written off as they occur and matched DIRECTLY to a specific receivable (in this case "a/r - company #3)
farhan92 nice one^
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