discussion questions and peer reviews

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Direct Write-Off Method

The use of the direct write-off method is when it’s been decided there is no chance of receiving the money that a customer owes. Companies should exhaust all recovery attempts before writing off a bad debt. To write a debt off, companies debit the bad debt expense account and credit the accounts receivable. Although, it doesn’t conform to GAAP (generally accepted accounting principles, the IRS requires the direct write-off method. Two advantages of the direct write-off method are: (1) It is simple and (2) Companies can write-off their bad debt on their annual tax returns. Two disadvantages of direct write-off method are: (1) The possibility of expense manipulation (Direct write-off method should only be used for small amounts that doesn’t affect the financial records crucially) and (2) The balance sheet won’t be an accurate statement of the company’s accounts receivable.

Allowance Method

The use of the allowance for doubtful accounts method is to estimate credit accounts that customers won’t pay. Companies don’t immediately write off accounts, the management official research past financial information to estimate bad debt amounts. The first journal entries under the allowance method include a debit to bad debt expense and a credit to allowance for doubtful accounts. Two advantages of the allowance method are: (1) It follows the GAAP principles to ensure accurate financial records and (2) The balance sheet accurately reports accounts receivable, which is a benefit for investors and management. The disadvantage of the allowance method is management may inaccurately estimate write-offs by a large margin, which can then cause the company to report inaccurate net income.

The direct write-off method is simple, and can be used by individuals that maintain a company’s books and have no extensive accounting education. Unlike the allowance method that estimates probable losses using various ratios and factors, the direct method is based on an actual amount which may have more/better advantages to the small business owner than the larger ones. Since the direct write-off method records the loss only when the account is determined uncollectible, it may result in a loss from a prior period being charged against unrelated income in a future period. This may result in the distortion of a company’s true profit of a given period, and does not comply with GAAP’s principle, which requires expenses to be matched with their associated revenues within the same period. The allowance for bad debts require significant judgement because there isn’t true figure it’s just an estimate of the amount of accounts receivable that the company won’t be able to collect. So, the figure allotted for bad debt can affect the income.


I agree that the U.S should raise the minimum wage $7.25 is to low for anyone to live on a higher minmum wage will help create jobs and grow the economy, the declining value of the minimum wage is one of the primary causes of wage inequality between low and middle income workers, and that a majority of Americans, including a slim majority of self-described conservatives, suppirt increasing the minimum wage. How this could affect the different levels of the economy? Raising the federal minimum wage will also stimulate consumer spending, help businesses bottom lines, and grow the economy, a modest increase would improve worker productivity, and reduce employee turnover and absenteeism,. It would also boost the overall economy by generating increased consumer demand.


Discuss the advantages of understanding accounting as it relates to your current or future position. Consider careers in management, sales, business operations, finance, and business ownership.


Learning about the sociological perspective is an important first step in understanding yourself and the people around you. We covered several topics this quarter. Which topic impacted you the most? Why? How will you use what you learned in this class moving forward?


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