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Two basic methods of accounting for bad debts are the allowance approach and the direct write...

Two basic methods of accounting for bad debts are the allowance approach and the direct write off approach. Briefly describe the difference between the two. Which is the most preferred by GAAP? Why?

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The allowance approach based on accrual basis of accounting and the direct write off approach is based cash basis of accounting , it will be written off when the company decided that customer will not pay.The first approach delays in recognition of bad debts and the seller charges the amount of the invoice to the allowance for doubtful debt.

The most preferred by GAAP is the direct write off approach because of timing of expenses recognition.

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