The expense recognition (matching) principle requires use of the allowance method of accounting for bad debts.

Question

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The allowance method of accounting for bad debts is consistent with the expense recognition (matching) principle. This is because this method recognizes bad debt expense in the same period as the associated sales revenue, even if the actual bad debts are not yet known. This allows for a more accurate matching of revenues and expenses, which is a key aspect of the matching principle. Thus, the use of the allowance method is required to comply with this principle.

The Expense Recognition (Matching) Principle Requires Use of the Allowance