WHY ARE THERE TWO WAYS TO WRITE OFF UNCOLLECTIBLE ACCOUNTS?
When a business makes sales on account, it is unlikely that all receivables will be collected. The expense of accounts not collected is generally recorded as an operating expense, but there are two ways to do this: (1) direct write-off method and (2) allowance method. The direct write-off method is the easiest one to use, but in most cases it is the least desirable. Under the direct write-off method, no entry is made for uncollectibility until an account is determined to be worthless. At that time, an entry is made debiting Uncollectible Accounts Expense and crediting the individual customer’s account receivable. This entry, however, is usually made in the wrong year to properly match expenses and revenues. By the time we have exhausted all efforts to collect the receivable, we are often in a different year than when the sale was made, thus recording the write-off (and subsequent expense) in the year following the sale. A better way to write off uncollectible accounts and match the exp
