The expense recognition 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 expense recognition principle does not permit the use of the direct write-off method of accounting for uncollectible accounts because it violates the matching principle. Instead, companies are required to use the allowance method, which estimates the expected amount of uncollectible accounts and records that amount as an expense in the same period as the related sales revenue.

The Expense Recognition Principle Permits the Use of the Direct