Respuesta :
Answer:
The correct answer is letter "D": does not require estimates of bad debt losses.
Explanation:
There are mainly two approaches while recognizing bad debts (unpaid debts): the allowance method and the direct write-off method. Using the allowance method the unpaid account receivable goes through a series of stages until it is recognized as a bad debt. There are no set criteria to do so. When the firm eventually recognizes and calculates the amount of a bad expense, it is recorded in an allowance account. The negative balance diminishes the company's revenue.
The direct write-off method does not generate any allowance account. The account receivable is simply written-off after the company determines the debt as uncollectible. Thus, there is no need to estimate bad debt losses using this approach.
Writing-off bad debts losses is one of the most preferred method in generally accepted accounting principles and is widely recognized.
It is the best method to hide the unnecessary assets of the firm and also hide the non-performing assets (NPA) of the firm.
- Bad debts are the receivables which have been dishonoured by the party who owed such money to the firm.
- Writing-off bad debts is an important part of preparation of balance sheets and other final accounts of the company as it has to be disclosed multiple times during the year like quarterly, half-yearly and annual accounts and books of the company.
- A firm cannot disclose misleading info in the books and results as it is a breach of law and may lead to broken trust of investors in company's shares.
Hence, the direct write-off of bad debts losses is a generally accepted practice under accounting principles.
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