The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet 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 a contra asset account that reflects the estimated amount of accounts receivable that may not be collected. This is an application of the expense recognition principle, which requires a company to record expenses in the period in which they are incurred. By estimating and recording the allowance for doubtful accounts, a company is able to recognize the expense associated with potential bad debts in the same period as the related revenue.

The Allowance for Doubtful Accounts, Which Appears as a Deduction