 In this presentation, we will take a look at multiple choice questions related to receivables. First question. The materiality constraint A. Does not allow the use of the direct write-off method B. Requires the use of the allowance method C. Requires use of direct write-off method D. Permits the use of direct write-off method when bad debt expenses are relatively small or E. Requires that expenses be reported in the same period as sales they helped produce. So we'll go through this again and go through the process of elimination. The materiality constraint A. Does not allow the use of the direct write-off method. Now if we don't know what the materiality constraint materiality constraint is, we may think that the direct write-off method is a good answer because the direct write-off method is not the preferred method. Now if we go through some of these we might be able to use them to have some process of elimination. So B. Requires use of the allowance method. So A. Does not allow the use of the direct write-off method. And B. Requires the use of the allowance method. Now those are basically, you know, there's only two methods typically to writing off the accounts. Either we use the direct write-off method or the allowance method. So if A. Says we're not allowed to use the direct write-off method and B. Says we are required to use the allowance method, they can't both be right. And so those almost eliminate each other from the answers here. D. Says requires the use of the direct write-off method. So that one just intuitively doesn't make sense really because the allowance method is typically the one that we would think is the preferred method. So if there's going to be anyone that is required, you would think it would be the allowance method that would be required. So I don't think C. Sounds good. D. Says permits the use of the direct write-off method when bad debt expenses are relatively small. And so that gives a qualification here. We might be able to use the direct write-off method. And then E. Says requires that the expenses be reported in the same period as the sales they helped produce. And that actually sounds kind of good too, right? I mean, I've heard that somewhere. What type of principle is that? So let's read through this one more time. See if we can just use the process of elimination as if we don't really know what materiality is and then see if we can define it. So the materiality constraint A does not allow the use of the direct write-off method. Or B. Requires the use of the allowance method, which are both of those cannot be right and they seem to be, you know, if one's true then the other seems like it should be true. So I'm going to say that those both can't be true. And that's basically telling us that it's not requiring the allowance method. And then D. Says permits the use of the direct write-off method when bad debt expenses are relatively small. That sounds kind of reasonable because that would mean that we usually would need to have to require to use the allowance method unless something happens, unless the direct write-offs are pretty small. So that sounds pretty good. And then E. Says requires the expenses be reported in the same period as the sales they helped produce. And that sounds really good. That sounds familiar to me, but that's an accrual principle. That's a standard accrual principle, one of the main two, the matching principle. And it's not really dealing with the materiality constraint here directly. So that's, although it probably rings a bell, it's not the one we're looking at here. So D is the one we want. So materiality constraint means that if something is small enough that it doesn't affect decision-making processes, then we can use the non-preferred method, which is the direct write-off method. So the direct write-off method does not apply the matching principle as well, but it's easier typically. And if the difference is immaterial because of the dollar amount, then it would be permitted to use given this materiality constraint. So once again the answer, the materiality constraint, D, permits the use of direct write-off method when bad debt expenses are relatively small. Next question. An accounts receivable subsidiary ledger is important for all reasons except A, it shows how much each customer has purchased on credit, B, it shows how much payment history per customer, C, it shows how much each customer owes, D, it helps to generate invoices, and E, it tells us when customers plan to pay. Let's go through this again with the process of elimination. An accounts receivable subsidiary ledger is important for all reasons except. Now when we think about an accounts receivable subsidiary ledger, we first probably want to define that as we go through these questions and see which ones would apply or not. The subsidiary ledger is going to be supporting backing up the amount on the general ledger or on the trial balance or on the balance sheet. Now the general ledger supports that information, but keeping the detail by date. What we want to do is give the detail by customer. And that's what we're doing here. We're trying to give the detail by customer so that we know who owes us the money. So A then says it shows how much each customer has purchased on credit. That's typically what we're doing. That's what the subsidiary ledger is there for. So it's not that one. That's what it does for sure. B says it shows how much payment history per customer, it should be payment history per customer, and it does show the payment history because it shows how much they bought and the payments that they made. C says it shows how much each customer owes, and again it does show how much each customer owes because it's going to show the purchases, the payments, and how much they still owed by the customers. And then D says it helps to generate invoices, which it shows how much the customer owes so it helps us to collect on the invoice and or to generate them. So yeah, that looks good. And then E says it tells us when the customer plans to pay. So of all this, it doesn't really tell us E. Now it has the term of when the payment is due. But the customer of course could pay any time. If it's due 30 days from now, the customer could pay us any time within the 30 days. Hopefully they will pay us by the end of the term at the end of 30 days, hopefully sooner than that. We'd like to get the money sooner. But it doesn't really tell us when the customer can be in the customer's head there. We don't know that. So I think E's the correct answer. So the question and answer one more time is, an accounts receivable subsidiary ledger is important for all reasons except E, it tells us when the customer plans to pay.