An example of a firm's use of a different set of accounting principles for financial reporting and for income tax reporting is
A)the allowance method for financial reporting and the direct write-off method for income tax reporting.
B)the direct write-off method for financial reporting and the allowance method for income tax reporting.
C)the direct write-off method for financial reporting and the percentage of sales method for income tax reporting.
D)the allowance method for financial reporting and the percentage of payables method for income tax reporting.
E)none of the above.

Question

Quizplus · Accepted Answer

The allowance method and the direct write-off method are two different methods used to account for bad debts in financial reporting. The allowance method is required by Generally Accepted Accounting Principles (GAAP), while the direct write-off method is not allowed under GAAP. However, the direct write-off method is allowed for income tax reporting purposes. Therefore, using the allowance method for financial reporting and the direct write-off method for income tax reporting is an example of using different accounting principles for these two purposes.

An Example of a Firm's Use of a Different Set