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.