The Internal Revenue Service permits companies to take a tax deduction for bad debts only after spec

The Internal Revenue Service permits companies to take a tax deduction for bad debts only after spec

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The Internal Revenue Service permits companies to take a tax deduction for bad debts only after  specific uncollectible accounts have been identified. Unless a company's uncollectible accounts  represent an insignificant percentage of their sales, however, they may not use the direct write-off  method for financial reporting purposes. Since several months may pass between the time that a  sale occurs and the time that a company realizes that a customer's account is uncollectible, the  matching principle, which requires that revenues and related expenses be matched in the same  accounting period, would often be violated if the direct write-off method were used. Therefore, most  companies use the direct write-off method on their tax returns but use the allowance method on  financial statements. Allowance method. Under the allowance method, an adjustment is made at the end of each 
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