What assumption does a company make when it recognizes bad debt expense?
A)all accounts receivable will be collected
B)when a company has credit sales,some customers will not pay
C)the bad debt expense associated with sales revenue should be recognized in the year following the sale
D)the bad debt expense associated with sales revenue should be recognized in the same year as the revenue
E)both A and C
F)both B and D

Question

Quizplus · Accepted Answer

When a company recognizes bad debt expense, it is assuming that some customers who were extended credit will not pay that debt. This assumption should be recognized in the same year as the revenue, in accordance with the matching principle. Therefore, the best choice is F, which includes both options B and D. Option A is incorrect because it assumes that all accounts receivable will be collected, which is often not the case. Option C is incorrect because it suggests recognizing bad debt expense in the year following the sale, which violates the matching principle. Option E is incorrect because it includes option A, which is wrong.

What Assumption Does a Company Make When It Recognizes Bad