Bad Debts Direct Write-off Method

There are two methods for writing off the accounts receivable. One of them is bad debt direct method. Under this, accountant does not take support from any estimate and as a result, the bad debt expense entry is passed only when the bad debt actually gets confirmed. In this method, no allowance for doubtful account is maintained in the accounting records.

The drawback of this method is that it violates the matching concept of accounting. Because when the entity is making the sale, an expense item must be matched based over the estimation criteria. US GAAP does not allow the use of direct write-off method of bad debts.

Journal Entry

  Debit Credit
Bad debt expense ABC  
       Allowance for doubtful debt   ABC
Contents
Financial Ratios Accounting Cycle Accounting Principles Financial Accounting Basics Financial Statements Reporting Bad Debts Bad Debts Direct Write-off Method Bad Debts Allowance Method Recovery of Bad Debts Bad Debt as Percentage of Sales Bad Debt Based on Receivable Bad Debt Income Statement Approach Problem and Solution How to calculate bad debt expense with accounts receivable Bad Debts MCQS - Multiple Choice Questions - Online Quiz Current Assets Long-term Assets Voucher System Partnership Depreciation Work Sheet - 10 Column Work Sheet Difference Between Reserve and Fund Accounting for Leases Capital reduction and reconstruction Absorption of Company Amalgamation Accounting for Installment Sales Basis of Recording Profit and Loss Branch Accounting Construction Contracts Revenue Recognition Accounting for Groups Financial Analysis Events After the Balance Sheet Date Deferred Tax Cost Accounting Activity Based Costing (ABC) Throughput Accounting Relevant Cost Break Even Analysis Standard Costing Inventory Management Payroll Accounting Royalty Accounting Statistics Master Budget Salary Income Microsoft Excel Tutorial Other Topics Share or Stock Valuation Model Financial Management Topics Kinds of Endorsement Letter of Credit, Kinds and Its Advantages/ Utilities Modern Functions of a Commercial Banks Difference Between Secured And Unsecured Loan Excel conditional formatting red if negative green if positive How to Remove Extra Spaces in Excel Result Card or Result Sheet Creation Using Excel Basic Accounting MCQS Multiple Choice Questions