Answer
Under the allowance method, a contra account is utilized since there is no certainty about the accounts that won't be paid. Consequently, the allowance account has a credit balance that plays the role of absorbing particular write-offs once they occur.
Under the direct–write–off -methodology, an entity has certainty that recovering the written-off amount is impracticable since all the ways of recovering the overdue accounts have been depleted. Consequently, the amount to be written off in totality is credited and debited to the accounts receivable and bad debt expense accounts, respectively.
Work Step by Step
Under the allowance method, a contra account is utilized since there is no certainty about the accounts that won't be paid. Consequently, the allowance account has a credit balance that plays the role of absorbing particular write-offs once they occur.
Under the direct–write–off -methodology, an entity has certainty that recovering the written-off amount is impracticable since all the ways of recovering the overdue accounts have been depleted. Consequently, the amount to be written off in totality is credited and debited to the accounts receivable and bad debt expense accounts, respectively.
