Question

Bad debt expense must be estimated in order to satisfy the matching principle when expenses are recorded in the same periods as the related revenues. In estimating bad debt expense for a period, companies generally accrue

a) Either an amount based on a percentage of total sales or an amount based on a percentage of accounts receivable after adjusting for any balance in the allowance for doubtful accounts.
b) A percentage of total sales.
c) Either an amount based on a percentage of credit sales or an amount based on a percentage of accounts receivable after adjusting for any balance in the allowance for doubtful accounts.
d) An amount equal to last year's bad debt expense.

Answer 1

Bad debt expense is estimated by companies to match the expense of potential bad debts with the revenue generated in the same period.

Step-by-step explanation:

In estimating bad debt expense for a period, companies generally accrue either an amount based on a percentage of total sales or an amount based on a percentage of accounts receivable after adjusting for any balance in the allowance for doubtful accounts.

For example, a company may estimate bad debt expense as 2% of total sales or 5% of accounts receivable. This allows the company to match the expense of potential bad debts with the revenue generated in the same period, adhering to the matching principle.