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.

4. When an account is written off, the debit is to Bad Debts Expense.

Short answer

The correct answer is the Direct write-off (DW) method.

Step-by-step solution

Introduction

Bad debt expense is subtracted from the amount of debtors in the organization's balance sheet while recording the closing amount of the company's debtor at the end of the financial year.

Reason for the correct answer

When an organization records the transaction of bad debt using the direct write-off method, the amount of bad debt expense is debited against the firm's accounts receivables while passing a journal entry in the journal book of the firm.