Question

When is it acceptable to use the direct write-off method?

Answer 1

Direct write-off method is a method which is used to write off the bad debts proven as uncollectible amount finally. As customers do not keep their promise to pay their due amount , companies must provide for these uncollectible accounts in their records.

So, Direct write off method is acceptable when bad debts are immaterial in amount which means bad debts are large in amount and starts affecting financial statement of a company.

This method considers uncollectible amount as Bad debt Expense and following Journal entry will be passed:

Debit Credit

Bad debt expense A/C .........

To Accounts recievable A/C .........

(uncollectible amount to be entered here )

As this method violates GAAP Matching Principle, it is unacceptable method for some companies because it write off the account only when it proves as uncollectible (some future period) instead in the year in which sale took place.