Question

Why is the allowance method preferred over the direct write-off method of accounting for bad debts?a. Allowance method is used for tax purposes.b. Improved matching of bad debt expense with revenue.c. Estimates are used.d. Determining worthless accounts under direct write-off method is difficult to do.

Answer 1

.b. Improved matching of bad debt expense with revenue

Step-by-step explanation:

the allowance method recognize an expected bad debt expense in the period the sales occur thus, it makes a better match between the revenues and the expense associate with them.

Under direct method, a write-off for sales in a prior period is going to generate a debt in the currnet period which is not a proper match.