Question

When using the allowance method, what account is debited when writing off uncollectible accounts? How does this differ from the direct write-off method?

Short answer

Answer

Journal entries:

Method	Accounts and Explanation	Debit $	Credit $
Allowance method	Allowance for doubtful accounts	xx
	Accounts receivables		xx
Direct write-off method	Bad debt expenses	xx
	Accounts receivables		xx

Step-by-step solution

Definition of Accounts Receivables

The accounts receivables refer to the sales amount for which payment is still due from the customer. It is considered a current asset of the business as the entity expects to receive it within one year.

Journal entry using allowance method and direct write-off method

Allowance method: Under the allowance method, the business entity debits the allowance for bad debts. It is done to adjust the allowance made by the business entity.

Direct write-off method: The business entity debits the bad debt expenses under this method.

The allowance method is different from the direct write-off method because it does not affect the income statement of the business entity.