GAAP requires companies to use the ________ method to record bad debts expense.

Question

Quizplus · Accepted Answer

GAAP requires companies to use the allowance method to record bad debts expense, which involves estimating the amount of uncollectible accounts and creating a contra-asset account called allowance for doubtful accounts or allowance for bad debts, to reduce the accounts receivable to their net realizable value. The direct write-off method, where bad debts are only recognized when they actually occur, is not allowed under GAAP as it does not match expenses with revenues in the appropriate period. Amortization and 360-day methods are not related to bad debts expense recognition.

GAAP Requires Companies to Use the ________ Method to Record