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Hi Professor and Class:
The primary advantages and disadvantages of applying the direct write-off over the allowance method of writing off accounts. The direct write-off method advantages is a simpler accounting method than allowance, save time in preparing tax return , which results in a tax write-off. The disadvantages are it violates matching principles, overstates accounts, inaccurate profits and provides more opportunities for unethical companies to manipulate gross income.
Direct write-off versus the allowance method, direct allows for more opportunity to manipulate the doubtful accounts, because businesses are suppose to record the full amount in account receivables at the time of the sale, however, some accounts may not occur until later in the period, which may result in a companys’ profit on its income statement to be inaccurate.
A company is suppose to write-off an uncollectible debt as soon as it determines the account to be bad debit, rather than waiting to a later period to delay reporting the debt expense, in order to profit their business.