The distinction between the direct write-off method and the allowance method is:

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The distinction between the direct write-off method and the allowance method lies in how bad debt expense is reported in each year. Under the direct write-off method, bad debt expense is only recognized when a specific customer's account is deemed uncollectible and written off. This means that bad debt expense is only reported in the year the write-off occurs. On the other hand, under the allowance method, bad debt expense is estimated and recorded in each year based on a percentage of credit sales or accounts receivable balance. This allows for a more accurate reflection of the company's bad debt situation and creates a cumulative amount of bad debt expense reported across years.

The Distinction Between the Direct Write-Off Method and the Allowance