The direct write-off method for uncollectible accounts:
A)ignores the matching principle.
B)is an acceptable alternative method of recognizing bad debt expense under GAAP.
C)results in higher bad debt expense for most companies.
D)may only be used by companies that do not extend credit to their customers.

Question

Quizplus · Accepted Answer

The direct write-off method does not match the recognition of bad debt expense with the revenue that was earned. Instead, it recognizes the expense only when a specific account is deemed uncollectible and written off. This violates the matching principle, which requires expenses to be recognized in the same period as the related revenue. Therefore, the direct write-off method is not an acceptable alternative method of recognizing bad debt expense under GAAP.

The Direct Write-Off Method for Uncollectible Accounts