Question

Explain the differences between the Direct Write- off Method and Allowance Method.
Answer these questions: which method is more accurate? which method is better at matching?

Answer 1

The Direct write off methode and Allowance methode are two methodes which used to handle the expense related to bad accounts which not recieved the fund. The direct write off methode and allowance methode are two different modes of treatment.

Direct wite off methode is the way that recognizing the bad debt account when its feel the bad debt. And in incase of Allowance methode, its the avccrual way of recording. Its alreafy predicted a amount which may come as bad debt using and analysing many scenarios.

Like above said Direct write off methode only record when customer fails to pay.. they donot make estimate. So it will violate GAAP. It dont following accrual concept.. The entry of direct write off methode us are as follow:

Bad debt a/c Dr

Account recievable cr

The allowance methode make an estimate of upcoming bad debt. which work on accrual basis.The journal entry for the disallowance methode is are as follows

Bad debt Dr

Allowance for doubtfull accounts

From the above point we know that most accurate methoslde is allowance for doubtfull accounts and better matching is direct writeoff methode...