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cbrownatx
Aug 19, 2008, 06:24 PM
(a) What amount of bad debts expense will DeKalb Company report if it uses the direct writeoff method of accounting for bad debts?

Total credit sales $1,640,000
Accounts receivable at December 31 620,000
Bad debts written off 26,000

AdamUTsel
Sep 3, 2008, 11:58 AM
The direct write-off method is used on the date it is certain that the customer will not be able to pay (in the most extreme instance, bankruptcy). The entry is to debit bad debt expense and credit accounts receivable. The advantage of this method is that it is based on fact rather than estimates. However, it is not accepted for financial reporting purposes because it fails to match bad debt expense against sales in the year of sale and does not show the realizable value of accounts receivable. It is the only method allowed for tax purposes (except for small banks and specified types of financial organizations).

In your case, the write-offs reported would be the $26k.