The correct answer is that the bad debt expense is recorded when a specific account is deemed uncollectible. Under the direct write-off method, bad debt expenses are only recognized when a company determines that a specific customer's account cannot be collected and is therefore written off. This method is straightforward because it directly matches the expense with the loss from an uncollectible account.
This timing is critical in financial reporting and helps ensure that the accounting records accurately reflect the actual realizable value of accounts receivable. The recognition of bad debt at the point a specific account is deemed uncollectible allows for an accurate representation of the company’s financial position at that time.
The other options do not reflect the principles of the direct method. For instance, recording the expense at the end of the fiscal year does not align with the event-driven nature of recognizing bad debts as they become evident. Recording an expense each time credit sales exceed cash sales is unrelated to the actual determination of collectibility. Lastly, recognizing an expense at the time of each credit sale would incorrectly accelerate the recognition of bad debts, which is not in line with the direct write-off approach.