The materiality constraint,as applied to bad debts:
A)Permits the use of the direct write-off method when bad debts expenses are relatively small.
B)Requires use of the allowance method for bad debts.
C)Requires use of the direct write-off method.
D)Requires that bad debts not be written off.
E)Requires that expenses be reported in the same period as the sales they helped produce.

Question

Quizplus · Accepted Answer

The materiality constraint allows the use of the direct write-off method when bad debts expenses are relatively small. This is because the direct write-off method is simpler and less time-consuming, and is an acceptable method of accounting for bad debts when the amounts are immaterial. However, if bad debt expenses are material, the allowance method should be used to ensure that expenses are reported in the same period as the sales they helped produce.

The Materiality Constraint,as Applied to Bad Debts