The direct write-off method involves writing off a bad debt expense directly against the corresponding receivable account.
What is direct write-off method?
Bad debts can be accounted for in one of two ways: directly or indirectly. Bad debts are only recorded once it is determined that they cannot be recovered. In other words, when it is established beyond a reasonable doubt that the debt cannot be collected, a business will merely declare the bad debt charge and reduce its accounts receivable.
Due to the fact that the direct write-off method frequently records bad debt in a period other than the period in which the transaction was recorded. As a result, it frequently fails to align costs with income.
Many small businesses employ the direct write-off approach, which doesn't call for audited financial records, to record uncollectible accounts.
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