Question

The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method.

2. Accounts receivable on the balance sheet is reported at net realizable value.

Short answer

The correct answer isthe allowance method.

Step-by-step solution

Introduction

Accounts receivables represent the due amount an organization is ought to receive in future from its clients. It is represented as an asset for the company because there will be an inflow of cash in future.

Reason for correct answer

Suppose an organization reports its amount of accounts receivables on the balance sheet based on a net realizable value. In that case, it implies that the allowance for doubtful debt is subtracted from the account receivables, which comes under the calculation of the allowance method.