A major purpose of using an Allowance for Doubtful Accounts is to recognize uncollectible accounts expense in the same accounting period as the related sales which caused the expense.

Question

Quizplus · Accepted Answer

The purpose of the Allowance for Doubtful Accounts is to recognize uncollectible accounts expense in the same accounting period as the related sales which caused the expense. This is achieved through the process of estimating and recording a reserve for potential bad debt losses in the current period, rather than waiting until specific accounts are deemed uncollectible in a future period. By doing so, the matching principle of accounting is upheld, which states that expenses should be recognized in the same period as the related revenues they help to generate. Therefore, the statement is true.

A Major Purpose of Using an Allowance for Doubtful Accounts