Final answer:
The percentage-of-sales method is the best illustration of the matching concept as it directly aligns the estimated bad debt expense with the revenues of the same period.
The correct answer is B
Step-by-step explanation:
The student's question pertains to the methods of determining annual loss on impairment and which one best illustrates the matching concept.
The matching concept in accounting states that expenses should be recorded in the period in which they are incurred to generate revenues, matching expenses against revenues.
Looking at the options given:
- Percentage of average accounts receivable and percentage of ending accounts receivable methods apply a consistent rate to the receivables balance to estimate bad debts, reflecting a periodical match.
- The percentage-of-sales method directly aligns bad debt expense with the revenue by estimating the percentage of sales that will become uncollectible, which closely adheres to the matching principle as it corresponds expenses with the revenues of the same period.
- The direct write-off method, however, does not align with the matching principle, as it recognizes bad debt expense only when specific accounts are deemed uncollectible, which may not be in the same period the related revenue was recognized.
Therefore, the percentage-of-sales method best illustrates the matching concept since it aligns the bad debt expense with the revenue of the same period.
The correct answer is B