Chapter 7 - Direct Write Off Method example

The video tutorial covers accounting transactions using the direct write-off method. It begins with an introduction to the method using an example with India company. The tutorial details transactions on December 1st and 15th, including consulting services and cash collection. It explains the direct write-off method, highlighting the absence of an allowance for doubtful accounts. The tutorial continues with April transactions and concludes with a correction of a write-off and cash collection in May.

What happens to accounts receivable when a company provides consulting services on account?

• It decreases by the service amount.

• It remains unchanged.

• It is written off immediately.

• It increases by the service amount.

How is a $15,000 cash collection from accounts receivable recorded?

• Debit accounts receivable, credit cash

• Debit cash, credit service revenue

• Debit cash, credit accounts receivable

• Debit service revenue, credit cash

In the direct write-off method, when is an account written off?

• When it is estimated to be uncollectible

• At the end of the fiscal year

• When it is confirmed to be uncollectible

• When the customer requests it

What is the first step when recovering a previously written-off account?

• Record the cash received

• Reverse the original write-off entry

• Create a new accounts receivable entry

• Ignore the payment

How does the direct write-off method differ from the allowance method?

• It requires a secondary envelope for tracking

• It does not use an allowance for doubtful accounts

• It uses an allowance for doubtful accounts

• It writes off accounts as soon as they are estimated to be uncollectible