The direct write-off method:
A)results in better matching of costs with revenues than the allowance method.
B)is an acceptable method under generally accepted accounting principles (GAAP).
C)requires that losses from bad debts be recorded in the period in which sales are made.
D)does not report accounts receivable on the balance sheet at their net realizable value.

Question

Quizplus · Accepted Answer

The reason the direct write-off method isn't considered a GAAP method is that it reports Accounts Receivable at the total amount owed by customers rather than what is estimated to be collectible (the net realizable value).The direct write-off method also violates the expense recognition ("matching")principle by recording Bad Debt Expense in the period customer accounts are determined to be bad rather than the period when the credit sales are actually made.

The Direct Write-Off Method