The materiality constraint, as applied to bad debts:
A) Requires that bad debts not be written off.
B) Requires use of the direct write-off method.
C) Requires use of the allowance method for bad debts.
D) Requires that expenses be reported in the same period as the sales they helped produce.
E) Permits the use of the direct write-off method when bad debts expenses are relatively small.

Question

Quizplus · Accepted Answer

The materiality constraint requires that expenses be reported in the same period as the sales they helped produce, but also permits the use of the direct write-off method when bad debts expenses are relatively small. Therefore, the best choice is E. Choices A, B, and C are incorrect because they do not address the materiality constraint. Choice D is incorrect as it refers to the matching principle, not the materiality constraint.

The Materiality Constraint, as Applied to Bad Debts