Question

Why does the direct write-off method of accounting for bad debts usually fail to match revenues and expenses? Why does the Bad Debts Expense account usually not have the same adjusted balance as the Allowance for Doubtful Accounts?

Answer 1

direct write-off method of accounting for bad debts usually fail to match revenues and expenses

Under the direct write off method, a company does not anticipate bad debt expense. ... The accounting profession prefers the allowance method over thedirect write off method because the accounts receivable will be presented on the balance sheet with a reduction called the allowance for doubtful accounts. This means the net amount of the accounts receivable will be lower and closer to the amount that will actually be collected. Bad debt expense is reported at the time that the allowance for doubtful accounts is created and adjusted. Hence, the bad debt expense is reported closer to the time of the credit sale.

Bad Debts Expense account usually not have the same adjusted balance as the Allowance for Doubtful Accounts

This is because the expense amount shows the events of the ongoing accounting period and the allowance is the outcome of the accumulated during the previous accounting periods. They could only equal when write-offs are during the previous accounting is equal to the beginning balance of the allowance account