Direct write-off method violates the matching principle.
BT: Knowledge

Question

Quizplus · Accepted Answer

The direct write-off method does not match expenses with revenues in the same accounting period, which violates the matching principle. Under this method, bad debts are only recognized when they actually occur, instead of estimating the amount of potential bad debts and recording them as an expense in the same period in which the corresponding revenue is recognized. This can lead to a distortion of the company's financial statements and is generally not allowed under Generally Accepted Accounting Principles (GAAP). The allowance method is a more accurate way of accounting for bad debts that complies with the matching principle.

Direct Write-Off Method Violates the Matching Principle