Two methods of accounting for uncollectible accounts are the
a. allowance method and the accrual method
b. direct write-off method and the accrual method
c. allowance method and the net realizable method
d. direct write-off method and the allowance method

Correct option is (d)

Explanation:

An account is termed uncollectible if they are not expected to be paid. There are two methods to write off these accounts:

1. Direct write off method: In this, the account recognized at uncollectible is directly charged to profit and loss account as an expense.

2. Allowance method: Under this method, a provision for doubtful debt is created where anticipated bad debts are charged. When an account needs to be written off, doubtful debt is debited and accounts receivables are credited.

The correct answer is B: direct write-off method and the accrual method

Explanation:

Unfortunately, some sales on account may not be collected. Customers go broke, become unhappy and refuse to pay, or may generally lack the ethics to complete their half of the bargain. It is necessary to establish an accounting process for measuring and reporting these uncollectible items. Uncollectible accounts are frequently called “bad debts.”

There are two methods of accounting to manage uncollectable accounts:

1- Allowance method

2- Direct Write-off Method

2- Under this method, there is no allowance account. An account receivable is written-off directly to expense only after the account is determined to be uncollectible. This method is required for income tax purposes. The direct write-off method is easy to operate as it only requires that specific debts are written off as they are identified with a simple journal. The problem with the method, however, is that it does not comply with the matching principle, in that revenue might be recorded in one period, when the customer is invoiced, whereas the expense of writing off the uncollectible amount is recorded in a completely different period when the amount is identified as irrecoverable.

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