Why is the direct write-off method not allowed under GAAP to account for doubtful accounts?
A)It is too difficult to implement.
B)It is allowed in certain circumstances.
C)It violates the expense recognition principle ("matching").
D)It is only allowed under IFRS.

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 (an overly optimistic point of view)rather than what is estimated to be collectible (a more realistic viewpoint).The direct write-off method also breaks 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.

Why Is the Direct Write-Off Method Not Allowed Under GAAP