Question

The direct write-off method is required for____

a. IFRS reporting purposes.
b. income tax purposes.
c. U.S. GAAP reporting purposes.

Answer 1

The direct write-off method is necessary for income tax purposes, whereas U.S. GAAP and IFRS usually require the allowance method for financial reporting purposes.

Step-by-step explanation:

The direct write-off method is required for income tax purposes. For financial reporting, U.S. Generally Accepted Accounting Principles (U.S. GAAP) generally require the use of the allowance method for accounting for bad debts, which estimates uncollectible accounts at the end of each period.

The direct write-off method, where uncollectible accounts are written off as they are identified, is not generally permitted under U.S. GAAP or International Financial Reporting Standards (IFRS). However, for income tax purposes, businesses can use the direct write-off method, as tax authorities allow businesses to deduct uncollectible accounts from their income when they are written off.