 There are two methods for accounting for uncollectible accounts, the direct write-off method and the allowance method. Most of the videos in this section will deal with the allowance method. This short video will focus on the direct write-off method. The direct write-off method is primarily used by small, non-public companies that really don't know how to do accounting or companies that have an immaterial amount of accounts receivable. Managers wait to record expense and write off an account once they determine which customers won't pay. There are some problems with this method. The direct write-off method always reports accounts receivable at their full amount. So assets are overstated on the balance sheet, assuming some accounts won't be collected in the future. It does not match bad debt expense against revenues very well. Many times, accounts aren't deemed to be uncollectible until well after the sale has been recorded. Therefore, expense is not recorded in the same period as the revenue. For these reasons, the direct write-off method is not gap-approved and should not be used. The allowance method is gap-approved, is the gap-approved method for accounting for uncollectible accounts.