Indicate whether each statement best describes the allowance (A) method or the direct write-off (DW)method. When an account is written off, the debit is to Bad Debts Expense.

Statement 1: In case there is a credit balance in a customer's account, such amount shall not affect the total balance of the accounts receivable to be presented in the asset section of the statement of financial position.Statement 2: A credit balance in a customer's account is caused by overcollection of amounts receivable from customers which will result to a liability to be presented in the noncurrent section of statement of financial position.Which statement(s) is(are) correct?

explain the impact on the balance sheet and income statement, specifying which accounts are affected and whether the balance is over or understated,  if adjustments to recognize prepaid insurance as being expired and unearned revenue as being earned, are not recorded.

This is a method of recognizing bad debts that requires a company to estimate the uncollectible accounts rather than wait for an account to actually be identified as uncollectible. Direct write-off method O Allowance method