Accounting Dictionary

Direct Write Off Method

When using this method you do not take bad debts off your balance sheet until you are absolutely sure that you will never be paid.

Many companies take a guess at how many of their customers will never pay and deduct something off their balance sheet every accounting period. They use this allowance method because they believe it gives a more accurate prediction of future cash flows. But people using the direct write off method do not make guesses. They leave the receivables on the company books until they have indisputable proof that they will never be paid. The direct method is the only method that can be used on income tax returns.

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