Direct Write-Off Method
Definition: Method of accounting for bad debts that records the loss only when a specific account is determined to be uncollectible. Not GAAP-compliant for fin…
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Method of accounting for bad debts that records the loss only when a specific account is determined to be uncollectible. Not GAAP-compliant for financial reporting because it violates the matching principle, but acceptable for tax purposes.
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Write off uncollectible account | ||
| ABC’s $2,200 is uncollectible. | ||
| Bad Debt Expense | $2,200 | |
| Accounts Receivable — ABC | $2,200 | |
| Expense recorded only at default. No allowance used. | ||
| 2. Recovery — reverse | ||
| ABC later pays; reinstate. | ||
| Accounts Receivable — ABC | $2,200 | |
| Bad Debt Expense | $2,200 | |
| Same expense account credited. | ||
| 3. Recovery — collect | ||
| Receive $2,200 from ABC. | ||
| Cash | $2,200 | |
| Accounts Receivable — ABC | $2,200 | |
| Not GAAP-preferred for material amounts—violates matching. | ||
Related Subjects
Related
- Bad Debt ExpenseExpense recorded only when a specific account is written off
- Accounts ReceivableThe asset removed when the write-off occurs
Contrast
- Allowance MethodAllowance method estimates in advance; direct method waits for actual default
- Allowance for Doubtful AccountsDirect method does not use a contra-asset allowance
See Also
- Net Realizable Value of ReceivablesDirect method may overstate NRV until write-off occurs
External Links
- Bad debt#Direct write-off method — Wikipedia