The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the:

Question

Quizplus · Accepted Answer

The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the matching principle, which requires that expenses are recognized in the same period as the related revenues. Under the allowance method, a company estimates the amount of bad debts expected to occur and records an allowance for doubtful accounts as a contra-asset account to accounts receivable. This allows for a more accurate matching of expenses with revenues, as bad debt expense is recognized in the same period as the related sales. The direct write-off method, on the other hand, delays recognition of bad debts until they are actually deemed uncollectible, which may result in a mismatching of expenses with revenues.

The Use of the Allowance Method of Accounting for Bad