What is the direct depreciation method?

The

direct depreciation method concerns the accounting practice used by companies in reporting payments from other parties that are considered uncomfortable. If this happens, a payment that was once considered income is transferred to the expense, and as such a company will register for tax purposes. Using a direct depreciation method, the company records costs at a time when the payment is considered to be non -payable than when the income was recorded. This practice may be problematic if the amounts involved are significant because it violates the accounting standard of corresponding income and expenditure at the time they are actually realized. For example, one company can serve as a seller for another company and a sales company can offer goods receiving the company for a loan, allowing payment to be made later. In some cases JSIGH, one party can give up their payment obligations, either because of financial difficulties or simply through its own recklessness. If to tOMU will occur, a company that loses its payment, for its loss and one way to achieve this is a direct depreciation method.

The use of a direct depreciation method will be a company that has finally given up the hope of receiving a specific payment, included in its costs. The records in accounting statements will be listed as the costs of inconvenient accounts. These expenditures balance the amount recorded as income when the purchase was originally made.

Companies that use the direct depreciation method should only try for those accounts that are not important for its overall financial status. If the amount of unscrupulous receivables reaches a significant amount, the direct method can provide an imbalanced look at the true financial power of the company. Assuming all credit arrangements are met is naive and the company may want to use the contribution method for accountingThe more realistic view of the unconventional accounts instead.

In contrast to the direct depreciation method, which does not apply to the comparative principle of accounting, the contribution method writes a certain percentage of its receivables as expenses in every accounting period. In this way, the company provides a more accurate representation of the money that it actually receives from its credit accounts. The contribution method also strictly adheres to the principle of corresponding, although it is not possible to precisely predict which receivables will be left unpaid in the future.