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Allowance and Direct Write-off Method

Discuss the allowance method and the direct write-off method of accounting for bad debts. When is the expense for uncollected accounts receivable recognized under each method?

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In accounting, there are two methods for recording bad debts, the direct write-off and the allowance methods. Under the direct write-off method, expenses are recognized only when the account is deemed to be noncollectable. Writing off an account increases bad debt expense and decreases account receivable.

A disadvantage for this method is that a determination and write-off of bad debt may not occur until a later period other than the period of sale. It also will ...

Solution Summary

This solution compares and contrasts the direct write-off method and the allowance method of accounting for bad debts.