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…
Scope:NarrowDifficulty:Easy
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 ExpenseExpense+ | $2,200 | |
| Accounts Receivable — ABCAsset− | $2,200 | |
| Expense recorded only at default. No allowance used. | ||
| 2. Recovery — reverse | ||
| ABC later pays; reinstate. | ||
| Accounts Receivable — ABCAsset+ | $2,200 | |
| Bad Debt ExpenseExpense− | $2,200 | |
| Same expense account credited. | ||
| 3. Recovery — collect | ||
| Receive $2,200 from ABC. | ||
| CashAsset+ | $2,200 | |
| Accounts Receivable — ABCAsset− | $2,200 | |
| Not GAAP-preferred for material amounts—violates matching. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Bad Debt ExpenseBad Debt ExpenseExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$2,200.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$2,200.00
$0.00
Accounts Receivable — ABCAccounts Receivable — ABCAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$2,200.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$2,200.00
$2,200.00
$2,200.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$2,200.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$2,200.00
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