Question

Cite all sources.

Please answer the following question(s):

1. Compare and contrast the direct write-off method and the allowance method for bad debts.

2. Explain when the expense for uncollected accounting receivable is recognized for each method. Why?

3. Why is the direct write-off method not considered to follow generally accepted accounting principles (GAAP)?

4. Discuss the allowance method and the direct write-off method of accounting for bad debts. When is the expense for uncollected accounts receivable recognized under each method?

4. Cite all sources. Please answer the following question(s): . Compare and contrast the direct write-off method and 2. Explain when the expense for uncollected accounting a. Why is the direct write-off method not considered to the allowance method for bad debts. receivable is recognized for each method. Why? follow generally accepted accounting principles (GAAP)? 4. Discuss the allowance method and the direct write-off method of accounting for bad debts. When is the expense for uncollected accounts receivable recognized under each method?

Answer 1

Direct written off method :- a method for recognizing the bad debts araised from the credit sale or account receivable.

Allowance method :- in this method the bad debts are transfer ti allowance account before written off of those bad debts.

Comparision and contrast of both the direct written off method and allowance method

1. In direct written off method the bad debts are directly written off from the books of accounts as an expense. But in the allowance method the bad debts are first transfered to allowance accounts and them written off from the books of accounts.

The time of recognition of the bad debts in the both the methods.

1. In written off method the expense of bad debts are recognized immediately after written off of the bad debts. Reason for immediate recognition is after written off of the bad debts the books of accounts does not show the bad debts balance so in this method immediate recognition of expense is done.

2. In allowance method the expense of bad debts are recognized after the transferring of the bad debts to the allowance account.reason for recognition of expense after transfer of the Bad debts to allowance account is in this method there is some collection after recognition bad debts and before written off of bad debts so in this method expense is recognized after transfer of and debts to allowance account.

Explanation for the non recognition of the direct written off method by generally accepted accounting principle (GAAP)

1. In this case the bad debts are directly written off as an expense . But in the other method ( i.e allowance method ) the bad debts are first transfer to the allowances account and them makes written off of those bad debts.

2. Every bussiness does not accept the total amount of debt as bad debts at least they try to collect a minimum amount. But in the direct written of method entire debt has to be written off but in the allowance method by transferring the expected bad debts to allowance method there is a chance to collect and record those collected amount from expected bad debts.

3. So there is a benefits in allowance method compared to direct written off method. So by considering the benefit from the allowance method the GAAP accepts the allowance method.

4. By analysing all the above points direct written off method is not accepted in books of accounts by GAAP and the written off as per allowance method is acceptable as per GAAP.

The time of recognition of the bad debts in the both the methods.

1. In written off method the expense of bad debts are recognized immediately after written off of the bad debts.

2. In allowance method the expense of bad debts are recognized after the transferring of the bad debts to the allowance account.

These are all the information regarding the above question.

I hope, all the above given points are useful to you.

Thank you.