The expense recognition (matching)principle,as applied to bad debts,requires:
A)That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions.
B)The use of the direct write-off method for bad debts.
C)The use of the allowance method of accounting for bad debts.
D)That bad debts be disclosed in the financial statements.
E)That bad debts not be written off.

Question

Quizplus · Accepted Answer

The expense recognition (matching) principle requires the use of the allowance method of accounting for bad debts. This method ensures that expenses are recognized in the same period as the related revenue, as opposed to the direct write-off method which does not recognize bad debt expenses until the debt is actually written off. The allowance method estimates the amount of bad debts that are likely to occur based on historical data and other factors, and records an expense for that estimated amount in the same period as the related revenue. This method better matches expenses with revenues and provides a more accurate view of a company's financial performance.

The Expense Recognition (Matching)principle,as Applied to Bad Debts,requires