Allowance Method vs Direct Write-Off Method
Which is GAAP?
Allowance is GAAP. Direct write-off is not.
Which method use allowance and estimate?
Allowance use allowance and estimate. Direct write-off does not.
When do we use the direct write-off method?
We use it when we cannot estimate bad debt.
What happens on a write-off entry for direct write-off?
Debit Bad Debt Expense and Credit Account Receivable
For direct write-off, what does this method use for year-end adjustment?
Direct write-off do not have a year-end adjustment
When is bad debt expense matched?
In allowance, bad debt expense is matched/recorded at the year when the sale was made. In direct write-off, bad debt expense is matched/recorded when the A/R is written off. This is the main difference between the two methods.
Who use the direct write-off method?
New Businesses use it. It is also used for tax accounting because managers cannot overestimate bad debt.