The matching principle permits the use of the direct write-off method of accounting for uncollectible accounts when bad debts are very large in relation to a company's other financial statement items such as sales and net income.

Question

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The matching principle requires expenses to be matched with revenues in the period they are incurred, which is not achieved by the direct write-off method. Instead, the allowance method is preferred for large bad debts to properly match expenses with revenues.

The Matching Principle Permits the Use of the Direct Write-Off