GAAP prefers companies to use the:

Question

Quizplus · Accepted Answer

GAAP prefers companies to use the allowance method to evaluate bad debts which involves estimating the amount of bad debts and creating a contra asset account to reduce the accounts receivable balance. This method is more accurate and matches the expense with the related revenue. The direct write-off method (choice A) is not preferred as it does not match the expense with the related revenue and violates the matching principle. Amortization method (choice C) is not relevant for bad debts evaluation. 360-day method (choice D) is also not relevant for bad debts evaluation.

GAAP Prefers Companies to Use The