Why does the direct write-off method of accounting for bad debts usually fail to match revenues and expenses?
The direct write-off method of accounting is used by firms when the percentage of their total credit sales is more, and there is a risk of non-payment from the debtors.
The famous accounting principle of the Matching concept states that an organization should match all the relevant revenues with the expenses.
Under the direct write-off method of accounting for bad debts, the total revenues and expenses are not matched because, the bad debts are not recorded in the books of accounts until they become uncollectible, which generally occurs after a credit sale.
The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method.
2. Accounts receivable on the balance sheet is reported at net realizable value.
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