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C2

Estimate first, write off later

The same $800 loss, recorded two different ways.

Allowance method: write off $800
Allowance for doubtful accounts800
Accounts receivable800
Direct write-off: write off $400
Bad debts expense400
Accounts receivable400

The records expense only when a specific account is finally judged uncollectible. It is simple, but it books the loss in the wrong period and is allowed only under the .

The estimates the loss up front, building an . A write-off later never touches expense again — it just clears a specific account against the estimate already on the books.