Archer Company and Zorro Company both have significant amounts of accounts receivable at any time, and both experience bad debts from time to time. Archer uses the percentage- of- sales method to account for bad debts, and Zorro uses the direct write- off method. Archer Company's method complies with IFRS and produces a better matching of revenues and expenses than does Zorro Company's method.

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The percentage-of-sales method used by Archer Company estimates bad debts based on a percentage of credit sales, aligning expenses with revenues in the same period, which complies with IFRS. Zorro's direct write-off method does not match expenses with revenues as it recognizes bad debts only when they are deemed uncollectible, which may not comply with IFRS.

Archer Company and Zorro Company Both Have Significant Amounts of Accounts