Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.
Bad debt expense:
Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, the estimated uncollectible accounts receivable are known as bad debt expense.
Allowance method:
It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method,
Direct write-off method:
This method does not make allowance or estimation for uncollectible accounts, instead this method directly write-off the actual uncollectible accounts by debiting bad debt expense and by crediting accounts receivable. Under this method, accounts would be written off only when the receivables from a customer remain uncollectible.
To describe: The approach of reporting bad debt expense under direct write-off method, and its disadvantages.
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- Which method delays recognition of bad debt until the specific customer accounts receivable is identified? A. income statement method B. balance sheet method C. direct write-off method D. allowance methodarrow_forwardDiscuss the differences between the allowance methods of recording bad debts and the direct write-off method.arrow_forwardWhich account type is used to record bad debt estimation and is a contra account to Accounts Receivable?arrow_forward
- What is the unique balance sheet disclosure that the Allowance Method requires, as opposed to the direct write-off method of accounting for bad debts?arrow_forwardWhat are the two methods of accounting for bad debts? Which is in accordance with GAAP?arrow_forwardExplain the methods of estimating bad debts ?arrow_forward
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