Simms Company has significant amounts of trade accounts receivable. Simms uses the allowance method to estimate bad debts instead of the direct write-off method. During the year, some specific accounts were written off as uncollectible, and some that were previously written off as uncollectible were collected.
Instructions
a. What are the deficiencies of the direct write-off method?
b. Describe the allowance method used to estimate bad debts and the theoretical justification for its use.
c. How should Simms account for the collection of the specific accounts previously written off as uncollectible?