The direct write off method is better than the allowance method because it is more consistent with the conservatism principle.

Question

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The direct write off method is less consistent with the conservatism principle because it only recognizes expenses when a bad debt actually occurs. This can result in an overstatement of accounts receivable and an understatement of expenses until the bad debt is actually written off. The allowance method, on the other hand, estimates and recognizes bad debt expenses in the period in which the related sales are made, which is more consistent with the conservatism principle.

The Direct Write Off Method Is Better Than the Allowance