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What is the difference between the direct write-off method and the allowance method for receivables? 1
What is the difference between the direct write-off method and the allowance method for receivables?
1. Prepare the journal entry to write off an account using the direct method.
2. Prepare the journal entries using the allowance method to establish the allowance and the write off of an account.
Expert Solution
Direct write-off method is recognize the bad debt as an expense at the point when realized to be uncollectible accounts. Direct write off method does not follow matching principal. Allowance method provides in advance for uncollectible accounts when we estimate the accounts will not payed in future. When actual bad debts occurs, accounts receivable write off through allowance account. This method follow the matching principal.
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