The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a statement of financial position and which is based on an estimate of bad debts, is an application of the
A) consistency characteristic.
B) expense recognition principle.
C) materiality quality.
D) revenue recognition principle.

Question

Quizplus · Accepted Answer

The allowance for doubtful accounts is based on the accountant's estimate of bad debts that will not be collected from customers. It is an application of the expense recognition principle, which requires expenses to be recognized in the same period as the related revenues. By estimating possible bad debts, the accountant is recognizing an expense in the period when it is incurred rather than waiting until the account is actually written off as uncollectible.

The Allowance for Doubtful Accounts, Which Appears as a Deduction