Question

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

Answer 1

The expense recognition principle necessitates that companies apply the allowance method for accounting bad debts, which estimates uncollectible accounts at the end of each period, better matching expenses with related revenues.

Step-by-step explanation:

The expense recognition (matching) principle requires that companies recognize expenses in the same period as the revenues they are related to, not necessarily in the period in which the expenses are paid. When applied to bad debts, this principle implies that bad debts should be estimated and matched against the revenues of the period to which they relate, even if the actual bad debts are identified at a later date. As a result, the use of the allowance method of accounting for bad debts is required by the expense recognition principle. The allowance method estimates uncollectible accounts at the end of each period, providing a better match against revenues than the direct write-off method, which only recognizes bad debts once specific accounts are deemed uncollectible.

Answer 2

financial statements is unimportant to users' business decisions.the use of the direct write-off method for bad debts.