📊The allowance method, which complies with GAAP, estimates the portion of receivables that will be uncollectible and reports it as an allowance for doubtful accounts.
📉The direct write-off method, which doesn't comply with GAAP, writes off uncollectible receivables as they become certain, without any estimation.
💰The allowance method matches revenue and expenses by estimating bad debt expense each reporting period.
💸The allowance method reduces accounts receivable to its net realizable value, reflecting the amount the company expects to receive in cash from its receivables.
💡The direct write-off method does not provide a matching of revenue and expenses, as uncollectible receivables are only recorded when they become certain.