The Direct Write-Off Method Is Acceptable for Financial Reporting Purposes

question 80

Multiple Choice

The direct write-off method is acceptable for financial reporting purposes only if the bad debt losses are insignificant.

• A)This is a false statement because the direct write-off method violates the matching principle.
• B)This is a true statement based on the concept of materiality.
• C)This is a false statement because the direct write-off method can only be used for tax reporting.
• D)This is a true statement because companies can choose either the direct write-off or the allowance method for financial reporting, as long as they consistently apply the method.

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Definitions:

Federal Law

Federal law refers to the body of law created by the federal government of a country, which applies to the entire nation and supersedes laws made by local jurisdictions.

Cumulative Summary

A consolidated report that aggregates data or information over a period, providing a total overview.

FICA Taxes

Taxes imposed on both employees and employers to fund Social Security and Medicare, based on a percentage of earned wages.

Payroll Tax Expense

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