Using the direct write-off method, companies record a bad-debt expense only when certain accounts receivable have become actually uncollectible.
Possible disadvantage : Mismatched Expense
Any bad-debt expense as a result of the uncollected accounts receivable is associated with the original credit sales. But using the direct write-off method, companies might not record a bad-debt expense until a later period when they deem certain accounts receivable as uncollectible. Consequently, the bad-debt expense is inappropriately recorded against the revenue of sales from a later period, mismatching the bad-debt expense with the revenue of the original credit sales.
15 Million Students Helped!
Sign up to view the full answer