The Direct Write-Off Method Is Generally Not Permitted for Financial

question 62

Multiple Choice

The direct write-off method is generally not permitted for financial reporting purposes because:

• A)Compared to the allowance method,it would allow greater flexibility to managers in manipulating reported net income.
• B)This method is primarily used for tax purposes.
• C)It is too difficult to accurately estimate future bad debts.
• D)Expenses (bad debts)are not properly matched with the revenues (credit sales)that they help to generate.

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Definitions:

Static Budgets

Static budgets are financial plans that do not change over the budgeting period, regardless of any changes in business activity levels or operating conditions.

Service Companies

Organizations that provide intangible products to their customers, usually offering professional advice or services rather than physical products.

Activity Levels

Refers to the volume of work or operations within a specific time frame in a business, affecting cost behavior and operational efficiency.

Goal Conflict

A situation where different parties have goals that are not aligned, leading to potential conflict or inefficiency.