Question

Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because:

a) It reduces the net income for that period
b) It increases the net income for that period
c) It has no impact on net income
d) It affects the equity of the company

Answer 1

Bad debt expense is recognized in the same period as the related revenue because it aligns with the matching principle and accurately reduces the net income for that period.

Step-by-step explanation:

Bad debt expense is recognized in the same accounting period as the revenue that is related to the receivable because it is consistent with the matching principle in accounting. This principle dictates that expenses should be recorded in the same period as the revenues they helped to generate, hence providing a more accurate picture of net income for that period. Hence, bad debt expense is recognized in the same period as the related revenue because option a) It reduces the net income for that period is correct. Reporting revenues without matching bad debts would overstate profits and not reflect the true financial position of the company.