1 The Allowance for DoubtfulAccounts is a contra asset account that reduces the

Question

1       The Allowance for DoubtfulAccounts is a contra asset account that reduces the value ofaccounts receivable reported on the balance sheet.  

                  True                    False

2.      The Percent of Credit Salesmethod for computing the Allowance for Doubtful Accounts, exactlydetermines which accounts will have to be written off to bad debtsin the future.

                  True                    False

3.      The direct write-off method forcomputing bad debts is an acceptable method according to GAAP formaterial amounts.

                  True                    False

Explanation / Answer

The allowance for doubtful accounts isa contra asset account TRUE that reduces the value of accounts receivable onthe Balance Sheet. The Percent of Credit sales method for computingthe FALSE The allowance for doubtful Allowance for doubtful accounts , excatlydetermines which debts is just an estimate. accounts have to be written off to bad debts infuture The actual bad debts written off might be greater or lesser than the allowance. The direct write - off method for computing baddebts is an FALSE The allowance method is an acceptable method for material accounts in GAAP. acceptable method under GAAP

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