In accounting for credit losses:

Question

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The allowance method matches credit losses with the related credit sales in the same time period in which the sale occurs. Under the direct write-off method, doubtful accounts are charged to the bad debts expense on the income statement in the period in which the accounts are determined to be uncollectible. There is no attempt to estimate the bad debts expense, nor is there any attempt to match this expense with sales revenues in the period in which the credit sales transaction originally occurred. Under this approach, expenses are understated and net income, retained earnings and total assets are overstated.

In Accounting for Credit Losses