1/6/2024 0 Comments Matching principle bad debts![]() ![]() Sometimes store can’t collect the money and have to write off the receivable as a bad debt because it will never be collected. Not all customers actually pay off their store credit cards. Doubtful accounts: using the matching principle, once revenue is recognized on a sale, a company is required to record an estimate of how much of the. One expense that retailers that offer credit to customers is bad debt. Rather, GAAP advocates use of the allowance method, which also handles bad debt in a manner that follows the matching principle. This violates the matching principle, which requires expenses to be reported during the period they were incurred. This means that any costs associated with these extended terms should be recognized and recorded as the revenues are recorded. It can then only be written off at that time. The matching principal means that revenues generated and expenses incurred in generating those revenues should be reported in the same income statement. In a sense, these extended terms help generate extra sales. ![]() The allowance method is less exact but it better illustrates the matching principle. The direct write-off method is exact and also better illustrates the matching principle. income tax reporting and should not be confused with the allowance method, which also accounts for bad debt. When comparing the allowance method of accounting for bad debts with the direct write-off method, which of the following is true a. ![]() That’s why just about every department store offers its own store credit card. In essence, the bad debts expense account is debited and accounts receivable is credited. When retail stores allow customers to take additional and extended lines of credit with their stores, the customers tend to purchase more merchandise. So an expense should be recorded in the same period as the corresponding revenue. By recognition of bad debts, the companys. The matching principle simply states that related revenues and expenses should be matched in the same period. The Direct Write-off Method violates the matching principle because it does not match revenues and expenses in the same. The matching principle of GAAP also implies recording related expenses and revenues within the same financial period. Businesses must incur costs in order to generate revenues. In other words, the matching principle recognizes that revenues and expenses are related. The use of the allowance method of accounting for bad debts. That bad debts be disclosed in the financial statements. That expenses be ignored if their effect on the financial statements is unimportant to users' business decisions. Definition: The matching principle is an accounting principle that requires expenses to be reported in the same period as the revenues resulting from those expenses. 8 years., The matching principle prescribes: A. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |