The direct write-off method violates the matching principle.

Question

Quizplus · Accepted Answer

The direct write-off method does not match expenses with the revenues they generate, as it only recognizes bad debts as an expense when they are actually written off. This violates the matching principle, which requires expenses to be recognized in the same period as the revenues they help generate. As a result, the direct write-off method is not compliant with Generally Accepted Accounting Principles (GAAP) and is only acceptable for tax purposes or in situations where bad debts are immaterial.

The Direct Write-Off Method Violates the Matching Principle