Ivy Tech Accounting 101 Final Practice Exam

Under the direct write-off method, when is bad debt expense recognized?

When cash is collected. At the time of sale. Only when specific accounts are deemed uncollectible. At period end as an estimate.

Correct Answer:

At the time of sale.

Explanation:

Under the direct write-off method, bad debt expense is recognized only when a specific receivable is deemed uncollectible. That means you wait until you determine a customer won’t pay, then write off that amount by debiting Bad Debt Expense and crediting Accounts Receivable. You don’t estimate uncollectibles at the time of sale, you don’t record it when cash is collected, and you don’t set an end-of-period estimate. For example, if you determine a $500 receivable will not be collected, you recognize $500 of bad debt expense then.

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