Question

O’Brien Brewery and Delgado Vintage Wines both decided to write off a specific customer’s uncollectible account as a bad debt expense. To record this transaction, O’Brien Brewery recorded a debit to Bad Debt Expense, whereas Delgado Vintage Wines recorded a debit to Allowance for Doubtful Accounts. What is the difference between these two companies?

Answer 1

Answer:

Both uses different methods when handling their accounts. O'Brien Brewery uses the direct write-off method for uncollectible accounts while Delgado Vintage Wines uses the allowance method for uncollectible accounts respectively.

Explanation:

O' Brien method records a debit to Bad Debt Expense and a credit to the specific Accounts Receivable account that is uncollectible. Delgado Vintage Wines' method records a debit to Allowance for Doubtful Accounts and a credit to the specific Accounts Receivable account that is uncollectible.