Generally accepted accounting principles (GAAP) require companies with a large amount of receivables to use the allowance method.
A) The direct write-off method.
B) The allowance method.
C) The direct write-off method.
D) None of these choices are correct.

The allowance method is an financial technique for reporting and accounting for uncollectable receivables. Many organizations sell their goods or services on credit. Unfortunately, not customers will pay what they owe to business. Organizations, therefore, end up incurring losses due to unpayable debts or bad debts.

To mitigate the effects of bad debts, The GAAP recommends the adoption of the allowance method. In this technique, a firm makes provision for bad debts by using a reasonable percentage of its account receivables as the basis. For instance, a firm may set 5 percent of its receivables as bad debts. The business creates bad debts allowance accounts and a contra-asset account Allowance for Doubtful Accounts to offset bad debts.

Generally accepted accounting principles (GAAP) require companies with a large amount of receivables to use the allowance method. A) The direct write-off method. B) The allowance method. C) The direct write-off method. D) None of these choices are correct.

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Generally accepted accounting principles (GAAP) require companies with a large amount of receivables to use the allowance method.
A) The direct write-off method.
B) The allowance method.
C) The direct write-off method.
D) None of these choices are correct.