Legal Definitions - direct charge-off accounting method

The direct charge-off accounting method is a system of accounting that allows for a deduction for bad debts when an account has become partially or completely worthless.

For example, if a company has a customer who owes them money but has not made any payments in a long time and shows no signs of being able to pay, the company can use the direct charge-off accounting method to deduct the amount owed as a bad debt.

This method is useful for companies that have a lot of outstandingaccounts receivable and need to write off bad debts to reduce their tax liability.