Week 1 – Discussion Question 1: ACC How would you describe the entries to record the disposition of accounts receivables? What is their function? How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method?

Companies dispose of accounts receivable for two main reasons. This may be their only reasonable source of cash, usually because they are unable to use typical borrowing methods. Also, billing and collection is costly and time-consuming, things many companies cannot afford. One of the most common ways for a company to dispose of their accounts receivable is by the method is a sale to a factor. To better explain, a factor is a finance company or back that can buy receivables from a business and then go directly to the customers and collect the payments. The factor in these cases charge fees for providing the service but the service itself can be extremely helpful to a smaller business that cannot afford the time-consuming process. As for the books, cash and fees are counted as a debit; the total of receivables purchased is recorded as a credit. This can help to eventually even out the books or accounts once debts are paid.
There are two main methods for bad debts the first is the direct write-off method. It is not accepted for financial recording under the GAAP. This is mainly because the actual losses from the uncollected debts are recorded in a different period than when it occurred. This can affect financial statements and balance sheets because they are not showing the “true” total for that period. I personally would not go with this option. The other method would be the allowance method. This is a method essentially keeps the debts recorded in the period they happened. By doing this income statements can become more