for a company with significant uncollectible receivables, the direct write - off method is unsuitable…

for a company with significant uncollectible receivables, the direct write - off method is unsuitable because \n\na. it overstates liabilities on the balance sheet\nb. it violates the matching principle\nc. it uses estimates for determining the bad debt expense\nd. companies are not able to track customer payment histories

for a company with significant uncollectible receivables, the direct write - off method is unsuitable because \n\na. it overstates liabilities on the balance sheet\nb. it violates the matching principle\nc. it uses estimates for determining the bad debt expense\nd. companies are not able to track customer payment histories

Answer

Brief Explanations:

The matching principle requires that expenses be recognized in the same period as the revenues they help generate. The direct write - off method recognizes bad debt expense when an account is determined to be uncollectible, which may be in a different period than the sale (revenue recognition). This violates the matching principle.

  • Option A: The direct write - off method does not overstate liabilities. Liabilities are not affected by this method in the way described.
  • Option C: The direct write - off method does not use estimates. It waits until an account is actually uncollectible.
  • Option D: Companies can still track customer payment histories while using the direct write - off method. The main issue is not related to tracking payment histories.

Answer:

B. it violates the matching principle