Which of the following statements is TRUE of the direct write-off method?
A) GAAP requires public companies to follow the direct write-off method.
B) It provides better matching of revenues with expenses.
C) It results in more accurate net income than any other method.
D) It is only suitable for small companies that have very few uncollectible receivables.

Question

Quizplus · Accepted Answer

The direct write-off method is only suitable for small companies that have very few uncollectible receivables. Under this method, bad debts are recognized only when they are actually written off, rather than estimating uncollectible accounts and creating an allowance for doubtful accounts as is done under the allowance method. This lack of estimation and allowance can result in inaccurate financial statements for larger companies with a significant receivables balance. GAAP does not require the use of the direct write-off method, and it does not provide better matching of revenues with expenses or result in more accurate net income than other methods.

Which of the Following Statements Is TRUE of the Direct