When the collectability of an amount that has been recorded as revenue becomes uncertain,the appropriate accounting treatment is to:
A) recognise as an expense the amount in respect of which recovery has ceased to be probable.
B) calculate the discounted present value of the amount expected to be received and adjust the recorded revenue accordingly.
C) adjust the amount of revenue originally recognised.
D) make no adjustment as the amount and timing of the uncollectible amount is uncertain.

Question

Quizplus · Accepted Answer

Revenue recognition principles require that for revenue to be recognized, it must be probable that the economic benefits associated with the transaction will flow to the entity. If collectability becomes uncertain after revenue has been recognized, the amount that is no longer expected to be collected should be recognized as an expense, often referred to as an allowance for doubtful accounts or bad debt expense.

When the Collectability of an Amount That Has Been Recorded