Question

Our company has an account receivable for $12,500 that we have now deemed uncollectible. We use the direct write-off method. Which of the following accounts would we credit to record the write-off?
a. accounts receivableb. allowance for doubtful accountsc. bad debt expensed. cash

Answer 1

Answer: a. Accounts Receivable

Explanation:

The Direct Write-off method is usually used by businesses where Uncollectible Receivables are not common. This way when it does occur, they simply debit the Bad Debts accounts and credit the Accounts Receivables to show the event.

This method of Accounting violates the Matching Principle under the Accrual basis because it usually does not recognize bad debts in the same period that the inventory was sold. It only records bad debts when they are declared which could be periods afterwards.