The direct write-off method is not preferable to the allowance method because the direct write-off method: reflects the actual facts as they have taken place. None of these. may recognize expense of a bad debt in a different period than the sale. recognizes the expense of a bad debt in the same period as the sale. relies on estimates which are always accurate and stable among years.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
The direct write-off method is not preferable to the allowance method because the direct write-off method:
reflects the actual facts as they have taken place.
None of these.
may recognize expense of a
recognizes the expense of a bad debt in the same period as the sale.
relies on estimates which are always accurate and stable among years.
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