Direct Write-Off

Examples of Direct Write-Off in the following topics:

• Valuing Notes Receivable

  • Companies have two methods available to them for measuring the net value of accounts receivable: the allowance method and the direct write-off method.
  • Companies have two methods available to them for measuring the net value of accounts receivable--the allowance method and the direct write-off method.
  • The second method is the direct write off method.
  • Differentiate between the allowance method and the write off method for valuing notes receivable

• Valuing Accounts Receivable

  • Companies use two methods to account for bad debts: the direct write-off method and the allowance method.
  • For tax purposes, companies must use the direct write-off method, under which bad debts are recognized only after the company is certain the debt will not be paid.
  • Smith fails to pay a $100 balance, for example, the company records the write-off by debiting bad debts expense and crediting accounts receivable from J.
  • Differentiate between the direct write-off method and the allowance method of accounts receivable valuation

• Write-Offs

  • Companies use two methods for handling uncollectible accounts: the allowance method and the direct write-off method.
  • Companies use two methods for handling uncollectible accounts: the direct write-off method and the allowance method.
  • The direct write-off method is simpler than the allowance method in that it allows for one simple entry to reduce accounts receivable to its net realizable value.
  • The entry to write off this account is:
  • Explain how to write off an uncollectible account using both the direct write-off and the allowance method.

• Recognizing Notes Receivable

  • When the customer pays off their accounts, one debits cash and credits the receivable in the journal entry.
  • The two methods are not mutually exclusive, and some businesses will have a provision for doubtful debts, writing off specific debts that they know to be bad (for example, if the debtor has gone into liquidation. )
  • Describe the difference between using the allowance method vs. the write off method when recording a note receivable

• Activities to Manage Receivables

  • When the customer pays off their accounts, one debits cash and credits the receivable in the journal entry.
  • The second method is the direct write-off method.

• Dealing with Foreign Currency and Bad Debts

  • The second method is the direct write-off method.

• Resource Cost Write-Off

  • The term write-off describes removing an asset whose value is zero and is no longer in use from the balance sheet.
  • The term write-off describes a reduction in recognized value.
  • Asset write-offs should not be confused with impairment.
  • A write-off journal entry removes an asset not in use and its related contra account (accumulated depletion) from the balance sheet.
  • An asset write-off removes an asset's cost off the balance sheet and expenses it on the income statement.

• Being Aware of Off-Balance-Sheet Financing

  • Off-Balance-Sheet-Financing represents rights to use assets or obligations that are not reported on balance sheets to pay liabilities.
  • Off-Balance-Sheet-Financing is associated with debt that is not reported on a company's balance sheet.
  • While these financial institutions may benefit from servicing these assets, they do not have any direct claim on them.
  • An example of off-balance-sheet financing is an unconsolidated subsidiary.
  • Jeffrey Skilling is the former CEO of Enron, which was notorious for it's use of off-balance-sheet-financing.

• Income Statement Formats

  • It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs and taxes.
  • Thus, the balance sheet has a direct relation with the income statement.

• Preparation of the Income Statement

  • It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.
  • Cost of Goods Sold (COGS)/Cost of Sales represents the direct costs attributable to goods produced and sold by a business (manufacturing or merchandising).
  • It includes material costs, direct labor, and overhead costs (as in absorption costing), and excludes operating costs (period costs), such as selling, administrative, advertising or R&D, etc.
  • SGA is usually understood as a major portion of non-production related costs, in contrast to production costs, such as direct labor.
  • Write-downs of inventories to net realizable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs