Answer :
Answer:
The direct write-off method is one way of accounting for bad debts. Bad debts are only accounted for when they are determined to be uncollectible. In other words a Business will only report the bad debt expense and reduce it's accounts receivable when it is proven beyond reasonable doubt that it can no longer be collected.
Because the direct write-off method often records bad debt in a in a different period from that in which the related was recorded. It therefore usually fails to match expenses with revenues.
The direct write-off method does not require audited financial statements and is used to record uncollectible accounts by many small businesses.
When the amount of accounts receivable is not significant to the financial statements bigger corporations also use this method. It prevents those who will use the financials form being misled by the amount of money reported under accounts receivable.
One problem with this method is that receivables are often recorded at their full amount, instead of the amount a business expects to collect from those receivables.
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