For a company with significant uncollectible receivables,the direct write-off method is unsuitable because ________.
A) it overstates liabilities on the balance sheet
B) it violates the matching principle
C) it uses estimates for determining the bad debt expense
D) companies are not able to track customer payment histories

Question

Quizplus · Accepted Answer

The direct write-off method violates the matching principle because it does not properly match expenses with revenues, as bad debts are only recognized when they are actually written off, instead of when they are estimated to be uncollectible. This method also does not use estimates for determining bad debt expense, as the expense is only recognized when the specific receivable is deemed uncollectible. However, the direct write-off method is unsuitable for companies with significant uncollectible receivables because it does not accurately reflect the company's financial position by overstating assets and net income until the receivables are actually written off.

For a Company with Significant Uncollectible Receivables,the Direct Write-Off Method