O’Brien Brewery and Delgado Vintage Wines both decided to write off a specific customer’s uncollectible account as a bad debt expense. To record this transaction, O’Brien Brewery recorded a debit to Bad Debt Expense, whereas Delgado Vintage Wines recorded a debit to Allowance for Doubtful Accounts. What is the difference between these two companies?

Question

14-11-2019
Business

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O’Brien Brewery and Delgado Vintage Wines both decided to write off a specific customer’s uncollectible account as a bad debt expense. To record this transaction, O’Brien Brewery recorded a debit to Bad Debt Expense, whereas Delgado Vintage Wines recorded a debit to Allowance for Doubtful Accounts. What is the difference between these two companies?

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amirmeeka amirmeeka · Answer 1 · 2019-11-14T08:18:38+01:00

Answer:

Both uses different methods when handling their accounts. O'Brien Brewery uses the direct write-off method for uncollectible accounts while Delgado Vintage Wines uses the allowance method for uncollectible accounts respectively.

Explanation:

O' Brien method records a debit to Bad Debt Expense and a credit to the specific Accounts Receivable account that is uncollectible. Delgado Vintage Wines' method records a debit to Allowance for Doubtful Accounts and a credit to the specific Accounts Receivable account that is uncollectible.