Accounting principles do not require companies to record bad debt expense for the amount of customer receivables on the balance sheet they do not expect to collect until the customer has declared bankruptcy or after the customer's account has been turned over to a collection agency.

Question

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Accounting principles do require companies to record bad debt expense for the amount of customer receivables they do not expect to collect, even if the customer has declared bankruptcy or the account has been turned over to a collection agency. This is done through the allowance for doubtful accounts.

Accounting Principles Do Not Require Companies to Record Bad Debt