Question

The direct write off method is normally not permitted by U.S. GAAP because it violates the ________ principle?

1) Matching
2) Consistency
3) Materiality
4) Conservatism

Answer 1

The direct write off method violates the matching principle because it does not record bad debt expenses in the same period as the related revenues.

Step-by-step explanation:

The direct write off method violates the matching principle, which is one of the fundamental accounting principles prescribed by U.S. GAAP (Generally Accepted Accounting Principles). The matching principle requires that expenses be recorded in the same accounting period as the revenues they helped to generate.

In contrast, the direct write off method records bad debt expenses only when specific accounts are deemed uncollectible, which could be in a different period from when the associated revenues were recorded. This method can distort the financial statements and does not provide a true and fair view of the company's financial performance during an accounting period.